Momentum is really building to extend and even expand the tax credit for homebuyers.

Senate leaders are reportedly backing a plan to extend the $8,000 tax credit for buyers who purchase their first homes by the middle of next year and to even offer a $6,500 credit to homeowners who haven’t moved in five years.

And some heavyweights are also putting the pressure on.

U.S. Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan are calling on Congress to extend the tax credit to help stabilize the housing market further.

“This credit has brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide,” Geithner and Donovan said in a press release. “In extending the credit, we urge Congress to include strict measures to combat tax fraud and protect responsible homeowners.”

Supporters warn that if the tax credit disappears it will be disastrous.

But should we spend millions to artificially prop up a sagging industry with a tax credit that was supposed to be temporary?

Shouldn’t we just let the market naturally recover as employment numbers improve and consumer confidence builds?

Reduced prices have made home-buying more attractive in many markets.

The tax incentive is just icing on the cake – icing that’s becoming too expensive for this debt-saddled country.

Home prices may have declined in Massachusetts, but housing affordability is still a real concern according to a new report that Banker & Tradesman reporter Ian Murphy wrote about.

The median price for single-family homes sold through September was $285,000, The Warren Group reported today. That’s $75,000 lower, or 21 percent below, the median price that was recorded for homes sold during the first nine months of 2005 – the year home prices peaked in Massachusetts.

Still, the Greater Boston Housing Report Card’s researchers note that lower- and moderate-income individuals, including younger workers, are having trouble keeping up with housing expenses and moving to cities where housing costs less. One reason is that home prices rose so sharply in Greater Boston from 2001 through 2005 and the price drop the region and state has experienced over the last four years hasn’t been as steep as in other parts of the country.

Another reason is that Boston-area rents have actually risen 11 percent since 2005. These are sobering facts to keep in mind when listening to all those who oppose the construction of new lower-priced housing.

Lexington, Dover and Sudbury aren’t places you typically associate with foreclosures.

But foreclosure prevention counselors and real estate brokers have been reporting that a growing number of homeowners are defaulting on their mortgage payments because of unemployment.

In fact, a recent report by WBUR focused on Sudbury, a suburb about 20 miles west of Boston where the number of initiated foreclosures has ballooned so far this year.

The report included the auction of a 1,770-square-foot Sudbury home that attracted one bid of $365,000. Its last sales price in November 2003 was $410,000. 

Lenders started 30 foreclosures in Sudbury during the first nine months of 2009, up from just seven during the same period last year, according to The Warren Group.

In Lexington, lenders have started 31 foreclosure proceedings so far this year, up from 19 last year.

And in Dover, where the median home price is over $860,000, 17 foreclosures were started, almost six times higher than the same time last year.

Of course, homeowners in those desirable towns may have a little more luck avoiding a foreclosure auction through a short sale or a normal sale.

Or they may be able to come up with the resources to ultimately save their homes.

Foreclosures in Massachusetts have dropped this year compared to 2008, but that doesn’t mean that local officials aren’t concerned about the foreclosure issue.

 Yesterday, The Warren Group released a report showing that foreclosures in the first nine months have fallen just about 30 percent from last year. But lenders have initiated almost 5,000 more foreclosures so far this year than they did at the same time in 2008.

One state lawmaker is trying to slow the pace of foreclosures by creating a mediation program. Sen. Karen Spilka of Ashland filed a bill to require lenders to meet with a trained mediator and a homeowner who’s defaulted to try to negotiate and reach some type of agreement.

The program would be voluntary for homeowners but lenders would be required to notify homeowners about the option.

Connecticut has a similar mediation program, but the program is mandatory for homeowners who are in foreclosure. While Connecticut officials say the mediation program has been successful in helping borrowers keep their homes, some industry officials in Massachusetts aren’t embracing the idea.

Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, told the Milford Daily News that the state would do better to let the 90-day right-to-cure law work. The law went into effect last year and allows homeowners who’ve missed mortgage payments 90 days to catch up.

“I’m just not quite sure from the lending community what a mediation process is going to do that’s above the 90-day right to cure or other foreclosure prevention processes that are already available,” Cuff was quoted as saying.

Yesterday’s ruling involving foreclosures, which re-affirmed an earlier court decision, has certainly spurred a lot of questions and created more headaches for many lenders and buyers.

As reported by Banker & Tradesman, Massachusetts Land Court Judge Keith Long refused to change a ruling he made in March when he found that two lenders had improperly foreclosed on two Springfield homes because they didn’t hold the mortgages at the time of the auction sales.

My initial reaction was good for the judge for admonishing lenders and servicers for their sloppy practices.

But after listening to some of the critics, I’m definitely confused.

Some attorneys say the ruling has forced lenders to hold back on foreclosing and selling properties where the homeowners have defaulted on their loans.

This isn’t going to help the housing market and economy recover any faster. It’s just going to delay and stall the inevitable foreclosures and auction sales that will likely occur down the road.

Will it lead to flood of bank-owned properties hitting the market at the same time?  

The ruling has also frustrated city leaders trying to get vacant homes occupied and rehabbed. They say they can’t proceed with plans to purchase foreclosed properties because of title problems.

Advocates for homeowners facing foreclosure are cheering the ruling. They argue that foreclosures should be overseen by the courts because too many lenders have ignored the laws.

Here’s my question: does this ruling mean that delinquent borrowers can stay in their homes for months without paying a nickel? How is that fair to all the unemployed homeowners who are scraping by but still managing to make their monthly mortgage payments?

Federal officials and mortgage loan servicing companies have been patting themselves on the back for putting half a million struggling homeowners into trial mortgage modifications.

The U.S. Department of Housing and Urban Development and the U.S. Treasury Department sent a news release last week touting that the “new milestone” was reached ahead of the Nov.1 benchmark that the Obama administration set.

“The goal of 500,000 trial loan modifications by November 1 initially set in July pushed servicers to ramp up program implementation and sustain a faster pace of modifications; trial modifications are now being issued at a faster rate than new homeowners are becoming eligible,” according to the press release.

Sounds great, right?

But the bigger question is: how many of these trial modifications will actually keep people in their homes in the long-term? In other words, what percentage of homeowners who were offered trial modifications will re-default?

Research has shown that a good number of homeowners who received loan modifications in the past ended up falling behind on mortgage payments within months.   

A troubling report from the Office of the Comptroller of Currency revealed that half of the loans modified in the first quarter of last year became delinquent again within six months.

Will these modifications provide different results? Only time will tell.

With the auction of new luxury condos in Boston slated to take place next week, I thought it would be interesting to take a look at what’s been happening with condo sales.

Condo sales in the Hub are at their lowest point in eight years. A total of 2,888 condos sold through August. From 2004 to 2007, condo sales for that same period were averaging over 4,600, according to data collected by The Warren Group.

Sales in downtown Boston, which includes sought-after neighborhoods like Back Bay and Beacon Hill, totaled 1,023 in the first eight months of 2009 – which is the lowest number since 1995. (Although in 2001, there were 1,024 sales).

Developers of new unsold condominiums in Boston – like 45 Province, the Clarendon Back Bay, and the W Hotel and Residences – have to be nervous with numbers like that. I don’t think they’re going to be saying the words “sold out” in the near future.

If condo sales in a popular city like Boston are slumping, imagine what’s happening in other cities.

Unit sales in Worcester, for example, are at their lowest in a decade, with only 211 condo sales transactions recorded so far. That’s huge drop from the 511 condo sales recorded during the same period three years earlier.

Boston and Worcester have something new to cheer about.

The two cities are on a list of 10 hard-hit housing markets that are ready for rebound that U.S. News & World Report recently compiled with help from Moody’s Economy.com.

According to the news magazine, Moody’s Economy.com predicts that Worcester home prices will increase about 6 percent by the first quarter of 2012 and 21 percent by the first quarter of 2014.

Moody’s also expects Boston home prices to rise about 3 percent in the first quarter of 2012 and another 18 percent two years later.

Why?

For one, Boston’s and Worcester’s economies are buoyed by their top-notch hospitals and colleges and universities. Those sectors will continue to help the economy.

But here’s another reason: the two cities didn’t have huge construction booms that left them with a glut of vacant property.

The cities have also worked hard to prevent foreclosures and also deal with the aftermath of foreclosures that did occur.

Leaders in Worcester have been pushing the Buy Worcester Now program designed to get bank-owned properties occupied again. The city is now trying to partner with banks and real estate agents to provide funding to buyers to buy and rehab vacant foreclosed homes.

Worcester home prices have plummeted since peaking in 2005. Median home prices reached $245,000 in 2005, according to The Warren Group.

Today, the median price for a Worcester home is down to $170,000 – a 31 percent drop!

Boston home prices have held up a little better during the slump.

The median price for a single-family home citywide reached $390,000 in 2005, according to The Warren Group.

The median price for homes sold in Boston during the first eight months of the year fell to $330,000 – 15 percent lower than the peak four years earlier.

October is shaping up to be the month for luxury condo auctions.

First up, are 42 condos at the Natick Collection or the Nouvelle at Natick, which will be auctioned Sunday. The starting auction prices are being advertised as low as $160,000.

Two weeks later, ten upscale units at The Bryant Back Bay are up for grabs. Starting prices are listed at just over $1 million.  

The same auctioneer is handling the two auctions, and he ‘s been touting them as an effective way for owners to dispose of unsold units and a great way for buyers to snag luxury residences at a steep discount.

But what the auctioneers and marketing professionals usually don’t reveal is how difficult it can be for a non-investor average Joe to get financing to purchase a condo in one of these projects.

Many lenders are balking at providing loans if a certain percentage of units aren’t sold or pre-sold in a development. In the case of the Nouvelle, only 18 out of the 215 units have been sold – even though it’s been open since last year.

I could only find one unit sold at the Bryant in The Warren Group’s real estate records database.  That unit sold in July for nearly $3 million.

The Nouvelle has also been at the center of some legal disputes. The Herald reported back in May that a lien was placed on the property by the construction company that built the condos. The company claimed that they were owed over $12 million.  

The marketers also don’t readily publicize the high condo fees that are attached to these brand new properties. In the case of the Nouvelle, the smallest unit would have a monthly condo fee of almost $500. The largest units’ fees may run as high as $1,280.

Who knows if these auctions will be successful, but other developers with unsold units will surely be watching them closely.