Lawmakers and President Barack Obama probably will strike a deal in a post-election session of Congress to defer most of the $700 billion in expiring tax cuts and spending reductions known as the fiscal cliff, said Neel Kashkari, Pimco’s managing director and head of global equities.

Kashkari, speaking at the Bloomberg Markets 50 Summit in New York, said his company predicts that a deal will be reached to defer all except $250 billion of the tax cuts and spending reductions slated to start in January. Still, the U.S. economy will be hindered, he said.

“With our outlook for the U.S. economy being quite slow growth, 1.5 to 2 percent growth, a $250 billion fiscal drag is a pretty significant headwind, given our slow economic growth,” Kashkari said. “So we think we’re going to avoid recession, but it is going to be a meaningful drag on the U.S. economy.”

The deficit-reduction agreement reached last year by President Barack Obama and congressional Republicans has created a “fiscal cliff” of spending cuts and tax increases starting in January unless Congress acts to stop it. The Congressional Budget Office forecast that if Congress does nothing, the fiscal changes would trigger a recession.

‘Premeditated Crisis’

“If there is such a thing as a premeditated crisis, this is one,” Andy Stern, former president of the Service Employees International Union, said at today’s Bloomberg Markets summit. “They’ve created exactly the scenario they want to have, which is to put their backs up against the wall since that’s the only way Congress will act.”

Kashkari predicted that a deal would come together soon after the election because “Republicans and Democrats are fighting a lot and making a lot of noise, but they agree about a lot more than they disagree.” Both parties, for example, probably will agree to let a payroll tax cut and expanded unemployment benefits end, he said.

Obama has been silent on whether to allow the 2 percentage- point payroll tax cut that he championed in 2011 to expire at the end of the year. He has focused instead on extending the George W. Bush-era tax cuts on income up to $200,000 a year for individuals and $250,000 a year for married couples, while letting them expire for top earners.

Republicans, who control the House, are insisting on extending the Bush tax cuts, which expire Dec. 31, for all income levels.

If Obama wins a second term and Republicans gain majority control of the Senate, Obama would probably press for the best deal he could get during the post-election session, Stern said. Should Republican presidential candidate Mitt Romney win on Nov. 6, there will be “a lot of willingness to give him time to look at the situation, make his own plans,” Stern said, predicting that a deal would come later.

’Real Damage’

Lawmakers “did real damage to the U.S. economy because of their fighting right up until the last minute” in 2011 over whether to raise the federal debt ceiling, Kashkari said, adding that Pimco was having trouble quantifying how injurious down-to- the-wire negotiations at the end of 2012 might be.

“The big uncertainty is how much brinkmanship there is during the lame-duck session, how much it hurts confidence, just like we saw a year ago with the debt ceiling fiasco,” he said.

Manhattan’s apartment vacancy rate rose in August to its highest level for the month in three years as record-setting rents pushed tenants out of the market in the busiest time for leasing, according to Citi Habitats.

The vacancy rate in August, when the greatest number of Manhattan leases are signed, was 1.19 percent, up from 1 percent a year earlier, the brokerage said in a report today. The rate was 0.88 percent in August 2010 and 1.62 percent in 2009.

The uptick signals that tenants are staying on the sidelines after average apartment rents reached a record in March and continued to climb each month, Gary Malin, president of Citi Habitats, said in an interview. A rise in vacancies before the slowest months for rentals may limit the surge in rates and make landlords more flexible on lease terms, he said.

“As they head into the winter months, the last thing they want to do is rack up vacancies,” Malin said. “So if they have to modify their prices or if they have to offer incentives they’ll do so.”

Apartment rents have surged in the past year as a stagnant sales market spurred demand for leasing. Rents averaged $3,461 in August, the highest since Citi Habitats began tracking the data in 2002. Lease prices are 2 percent higher than the 2007 peak of $3,394, the brokerage said.

Home Sales

Stricter mortgage-lending standards and weak consumer confidence are still limiting home purchases, creating enough competition for rentals to keep lease rates rising in the coming year, said Jonathan Miller, president of New York appraisal firm Miller Samuel Inc. Purchases of condos and co-ops were little changed in the second quarter compared with a year earlier, while the median price fell 2.5 percent, according to a report from Miller Samuel and Prudential Douglas Elliman Real Estate.

“Statistically, I don’t see it as a defining moment,” Miller said of the August vacancy rate. “I would expect the pace of rental growth to ease over the next year, but still expand.”

Any price decreases or landlord concessions in the coming months will be moderate, Malin said.

“I don’t think you’re going to see any massive price depreciation,” he said.

Rents for studios climbed 1 percent in August from a month earlier to $2,092, while one-bedrooms declined by one percent to $2,785, Citi Habitats said.

Two-bedroom units rose 1 percent from July to $4,032 on average, while rates for three-bedroom apartment prices remained little changed at $5,320.

The Upper East Side neighborhood had the highest vacancy rate at 1.6 percent, the brokerage said. The Upper West Side had vacancies of 1.38 percent. The lowest vacancy rate was in the Gramercy area, at 0.76 percent.

It’s thinner, lighter and larger than any version yet, but first reactions to Apple’s iPhone 5 — the latest iteration of the company’s signature iPhone smartphone — have been mixed.

Matt Case, a broker with Coldwell Banker Schmidt Realtors in Benzonia, Mich., says the new iPhone’s longer battery life, which Apple says allows for up to eight hours of Web browsing, and its svelte design — 20 percent lighter and 18 percent thinner than its predecessor, the iPhone 4S — will likely spur him to give up his Thunderbolt, an Android phone from HTC.

Though he doesn’t work in the field much anymore, Case anticipates the upgraded 8-megapixel camera, which can shoot sharper photos and video, will be very appealing to agents.

Stephanie Saum, a San Diego-area marketing consultant who has worked with real estate professionals and who is an iPhone 4S user, thinks the “coolest” features are found not in the larger, faster phone but in iOS 6, Apple’s new mobile operating system announced in conjunction with the iPhone 5 release.

IOS 6 features Facebook integration with photos, maps, calendar, contacts and Siri, the operating system’s voice-controlled “assistant.” It also features the ability to take panoramic photos (iPhone 4S, iPod 5 and iPhone 5 only) and share photo streams, presumably through social media.

Made of aluminum and glass, the new iPhone has an upgraded camera that works better in low light, and sports a screen that while retaining its iPhone 4 width is now 4 inches long, up from 3.5 inches, allowing a fifth row of apps to appear on the home screen.

Residential construction workers took the hardest hit during the downturn, and a new study from Fannie Mae shows it will be years before a return to even normal levels.

The study was authored by Fannie economist Manhong Feng and Patrick Simmons, a director in the strategic research group at the government-sponsored enterprise. They showed from December 2007 through June 2012, Americans lost an aggregate of nearly $3 billion in weekly earnings.

“When industrial sectors are examined individually, construction stands out as having suffered the greatest loss in aggregate earnings from the beginning of the Great Recession to June 2012,” Feng and Simmons wrote.

Aggregate weekly earnings for construction workers dropped by nearly $1.1 billion from December 2007 through June 2009. And during the sluggish recovery since, this sector lost another $400 million in weekly wages.

“The large employment-driven earnings decline in the construction sector is one symptom of economic rebalancing in the aftermath of the housing bubble,” researchers said.

But instead of measuring the construction share of the work force against pre-recession highs, it might be more constructive to compare this sector to levels seen before the housing bubble began to grow.

Construction made up 4.8% of the private labor force in 1992, peaked at 6.4% during the height of the bubble in 2006. It has since fallen by less than two percentage points as of June 2012, according to the study.

Still, the researchers believe it will still take some time before construction shakes off the remnants of the housing boom, even after hitting a bottom in 2009. Private residential construction spending increased 70% from 2001 to 2006, more than double the 34% growth in GDP.

According to the Bureau of Labor Statistics, roughly 563,000 residential construction workers had a job as of August 2012, half the more than 1 million employed homebuilders at the height of the bubble in 2006. But it’s also down from roughly 807,000 in the pre-bubble period of August 2002.

“As the economy works off the imbalances of the housing bubble, we expect that it will likely take years before construction activity rebounds to a more ‘normal’ level consistent with sustained rates of household formation, housing demolition, and demand for second homes,” according to the study.

Energy costs soared on Labor Day reaching a level that is just 25 cents under the 2008 peak, threatening the strength of the housing recovery, Freddie Mac said.

Skyrocketing fuel expenses generally force consumers to reduce spending in other areas, creating negative outlier effects for the entire economy and possibly housing, Freddie noted in its September 2012 economic outlook.

The good news for housing is energy conservation technology has succeeded in keeping expenses down on many modern properties. “And some homebuyers have begun to value newly built houses that have energy efficient certifications,” Freddie said Wednesday. As buyers begin to value lower energy bills, those details could prove helpful to homebuilders who are trying to distinguish their products in a competitive marketplace.

Still, housing is not immune when fuel shocks hit the system. The 2008 downturn, which followed months of escalating fuel prices, illustrated the deep risks involved with sudden energy spikes.

By Labor Day this year, the average price of a gallon of regular gas had reached $3.84, the U.S. Department of Energy said. That 15% spike from July “diverts purchases away from other consumer goods and can forestall business investment spending,” Freddie noted.  

“This in turn can slow the pace of economic growth, and with it the recovery of the housing sector,” the GSE warned.

Still, there are saving graces for housing, namely in the form of energy efficient cars and homes.

Homes built in the past 12 years include technologies that keep energy expenses about 30% lower than those of homes built prior to 1960.

“This is true even after home improvements have been made to many of these older homes over the last quarter century to increase their energy efficiency. And some home buyers have begun to value newly built houses that have energy efficient certification,” Freddie said.

Lenders overall foreclosed on fewer homes with 52,380 American properties going through the foreclosure process in August, a 2% drop from July and a 19% decline from August 2011.

Daren Blomquist, vice president of RealtyTrac, said foreclosure activity in the majority of nonjudicial foreclosure states continued to fall in August with Washington state remaining a notable exception. Its foreclosure activity increased 38% annually.

Blomquist expects this trend to resurface with nonjudicial foreclosure states moving through the default process at a steady pace while judicial foreclosure states experience sudden fluctuations up and down as legislation and courts stall foreclosures, pushing them later on the calendar.

“The rebounding activity in Washington state is likely the result of lenders catching up with foreclosures delayed by a state law that took effect in July 2011 and allowed homeowners facing foreclosure to request mediation,” said Blomquist. “This rebounding pattern will likely be repeated in the coming months in other states that have passed legislation delaying the foreclosure process.”

Judicial foreclosure states such as Florida, Illinois, New Jersey and New York exhibited the effects of deferred foreclosures with default notices ticking up, pushing foreclosure rates higher in August.

“Previous to August, the nation’s top two state foreclosure rates have been from those four nonjudicial states every month since December 2010,” Blomquist added.

Instead, Illinois ended the month of August with the highest foreclosure rate. The  state had one out of every 298 homes facing a foreclosure filing. This is the first time Illinois has taken the top spot since the survey was launched in 2005. 

Twenty states — including New Jersey, New York, Maryland, Illinois and Pennsylvania — saw year-over-year increases in foreclosure activity. It was the opposite in the majority of nonjudicial foreclosure states with activity levels falling 31% annually in those combined jurisdictions.

About 15 nonjudicial foreclosure states and Washington, D.C., did experience monthly foreclosure activity increases. Those states included Arkansas, Utah, Colorado and Washington, where monthly foreclosure activity levels rose anywhere from 23% to as much as 61% in Arkansas.

Despite a lackluster August employment report, mortgage rates barely moved — if at all — this week as the financial markets speculate on further monetary stimulus from the Federal Reserve.

The Freddie Mac survey showed the 30-year Fixed Rate Mortgage averaged 3.55% for the week ending Thursday, unchanged from last week. Last year at this time, the 30-year FRM averaged 4.09%.

The 30-year FRM stands only six basis points above the record low average hit in July.

The 15-year FRM, a popular refinancing choice, averaged 2.85%, ticking down from 2.86% last week. A year ago, the average rate for a 15-year FRM was 3.3%.

Five-year, Treasury-indexed, hybrid adjustable-rate mortgages averaged 2.72%, down from 2.75% last week and falling from 2.99% a year earlier.

One-year, Treasury-indexed ARMs averaged 2.61%, the same as last week and down from 2.81% last year.

The economy added 96,000 net new workers in August, while revisions subtracted 41,000 from the prior two months. Manufacturers cut 15,000 employees in August, representing the largest decline since August 2010. And about 368,000 people left the workforce, causing the unemployment rate to fall to 8.1%.

A new study from Fannie Mae shows it will be years before the number of residential construction jobs return to a normal level.

Home loan analytics firm Bankrate, which surveys large banks, reported that the 30-year FRM rose to 3.81% from 3.79%, while the 15-year FRM stayed at 3.04%. The 5/1 ARM slipped to 2.75% from 2.76% for the week.

It’s more affordable to buy a home than to rent in the 100 largest metros in the nation. That’s the case if you plan to stay in the home for seven years, which is the average time Americans traditionally live in a home before moving.

The findings come from real estate data provider Trulia, which conducted a study of key market factors impacting the cost of homeownership. Based on asking prices and rents from the summer, the company claims that, on average, buying is 45% cheaper than renting those areas. That’s a savings of $771 a month.

Trulia Chief Economist Jeff Kolko cites the faster pace of rent hikes versus those of home prices.

“Asking home prices have started to rebound and have risen by 2.3% year-over-year in August (3.8% excluding foreclosures); however, rents have risen more (4.7%),” Kolko notes. “This means that prices are lower relative to rents than they were a year ago.”

“But more importantly, mortgage rates have fallen,” he adds. The 30-year fixed-rate mortgage sits at 3.55%, hovering only six basis points above the record low average hit in July.

To calculate whether renting or buying costs less, Trulia assumes people can get a low mortgage rate of 3.5%, itemize their federal tax deductions, are in the 25% tax bracket, and will stay in their home for seven years.

However, how much cheaper it is to buy a home than to rent depends on where you live.

Buying is 24% cheaper than renting in Honolulu, 28% cheaper in San Francisco, and 31% cheaper in New York, Trulia found. (Click on the map below.) Homeownership is even more affordable in Detroit, where buying a home is 70% cheaper than renting, and 63% cheaper in Oklahoma City and Gary, Ind.

With a higher mortgage rate (4.5%), failing to itemize and a shorter time horizon (five years), Trulia says renting becomes cheaper than buying in New York, San Francisco, San Jose, Calif., and Honolulu. Buying remains cheaper than renting in the other 96 out of the 100 largest metros.

If buying is so inexpensive relative to renting, why aren’t more people doing it? Kolko responds that high unemployment is preventing people from saving for a down payment.

“And keep in mind, in the metros where the cost of buying is less than half of what it would cost to rent over the long term, it still takes years to save enough for a down payment,” he says. “It may be 56% cheaper to buy than to rent in Denver, for instance, but it takes more than eight years to save enough for a down payment there.”

CoreLogic today released a new analysis showing that 10.8 million, or 22.3 percent, of all residential properties with a mortgage were in negative equity at the end of the second quarter of 2012. This is down from 11.4 million properties, or 23.7 percent, at the end of the first quarter of 2012. An additional 2.3 million borrowers possessed less than 5 percent equity in their home, referred to as near-negative equity, at the end of the second quarter.

Approximately 600,000 borrowers reached a state of positive equity at the end of the second quarter of 2012, adding to the more than 700,000 borrowers that moved into positive equity in the first quarter of this year.  Moreover, there were 1.8 million borrowers who were only 5 percent underwater at the end of the second quarter. If home prices continue increasing over the next year, these borrowers could move out of a negative equity position.

Together, negative equity and near-negative equity mortgages accounted for 27.0 percent of all residential properties with a mortgage nationwide in the second quarter, down from 28.5 percent at the end of the first quarter in 2012. Nationally, negative equity decreased from $691 billion at the end of the first quarter in 2012 to $689 billion at the end of the second quarter, a decrease of $2 billion driven in large part by an improvement in house price levels.

“The level of negative equity continues to improve with more than 1.3 million households regaining a positive equity position since the beginning of the year,” said Mark Fleming, chief economist for CoreLogic. “Surging home prices this spring and summer, lower levels of inventory, and declining REO sale shares are all contributing to the nascent housing recovery and declining negative equity.”

Despite the progress negative equity remains a huge problem, placing homeowners at risk of foreclosure, preventing them from refinancing and freezing them in place so that they cannot sell or buy.

Most borrowers in negative equity are continuing to pay their mortgages. The share of borrowers that were underwater and current on their payments was 84.9 percent at the end of the second quarter in 2012. This is up from 84.8 percent at the end of the first quarter in 2012.  However, last week Lender Processing Services reported a link between negative equity and new problem loans.

“The July mortgage performance data shows a continuing correlation between negative equity and new problem loans,” explained Herb Blecher, senior vice president, LPS Applied Analytics. “In Nevada and Florida, two of the states with the highest percentage of underwater borrowers, more than three percent of borrowers who were up to date on their payments are 60 or more days delinquent six months later. This suggests that further home price declines – should they occur – could jeopardize recent improvements.”