Wednesday, February 25, 2009

2009 First Time Home Buyer Tax Credit FAQ's

2009 First Time Home Buyer Tax Credit FAQ's.

How could this effect my mortgage payment?

• Assuming you are eligible for the full $8,000 refund it would be like reducing your monthly payment by $667 dollars a month!

• Example: You purchase a home for $200,000 and use the FHA program to finance a $193,000 mortgage at 5% with a payment of principle and interest $1,036/month.
• In theory if you took the full $8,000 refund and put it towards your monthly mortgage payment it would be like paying $370 a month for the first year!

Who is Eligible?

• First-time home buyers purchasing any kind of home - new or resale - are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009.
• For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

How do you define a first time home buyer?

The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

How is this different from the 2008 tax credit?

The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.

Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

How much will I get back?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even the entire amount of the refundable tax credit.
For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

Are there income limitations?

The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

Does new construction qualify?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.

Why should I buy now?

Mortgage rates are at historic lows.
Housing prices have come down over the past 2 years and it is a buyers market.
The government has never implemented a program like this - it is like giving you a check for up to $8000!
Who can assist me?

Let Prestige Real Estate Group and Affiliated Financial Group help you take advantage of this once in a lifetime program.

Sunday, February 8, 2009

So How’s the Market, February 2009

All data taken from Metrolist, Inc. on February 5, 2009

Listing inventory is standing at 20492 single family and condo units for the Denver Metro area. This represents a 19% decrease from February of last year. Typically we would see inventory start to rise in the late winter and spring, but the growth from January to February of 2009 only increased 1659 units or an 8% increase when in past years we have seen double digit increases in the inventory from January to February.

Inventory and contracting are the leading indicators of where the marketplace is headed. Let’s take a look at the February inventories for the last six years to show where the trend has been.

As you can see, the current inventory is at a six year low for single family and condos.

What’s even more impressive is the inventory from zero to $250,000 currently stands at 5790 single family and 3026 condos active for a total number of 8816 total units. The last 12 months in this price range has experienced a total number of 27374 total units closed. This represents a meager 3.864 months supply of homes. Prices are rising in this price point as we write this and our estimate would be to suggest that prices will go up .15% per month or an average of $300 per month for the next 6 months or so on a $200,000 home. Denver will experience appreciation in lower prices for the first time in 4 years and buyers wanting to buy, now is a terrific time to capture the wave of appreciation that will start with recorded closed sales in March.

The inventory from $250,000 to $500,000 is also at a level that will ultimately cause prices to improve for the homeowners but will remain more at the current prices till June. The total inventory is 6627 units in this price point and the last 12 months have experienced 11,578 units closed or a 6.86 month supply. For prices to affectively rise, the supply will need to be between 4.5 month and 6 months to cause buyers to have a sense of urgency. Although on the cusp of doing so in this price point, buyers closer to the $500,000 range will experience more choices than those homes price below $300,000.

Homes priced above the $500,000 range are still competing with higher inventories and some sellers are continuing to discount their prices. With lower interest rates and seller assistance there are opportunities for buyers to move up into the higher ranges. The higher price ranges will gain little appreciation for the next 12-18 months but the opportunity for the move up buyer to buy more house than they thought was available is now here for the taking. These will be outstanding long term investments for a buyers financial future. Sellers will continue to compete for these buyers through price and incentives.

Know the inventory when buying a home, as that will give you a good looking glass into the future.

Know the inventory when selling your home also, so you don’t under price or over price your home based upon competing inventories and lose out on the wave.

The second leg of determining market conditions are those properties that are currently under contract.

As of today, 5337 single family condo homes are under contract in the Denver metro area. This represents a 15%+ increase over January. We would expect to see increases this time of year, but normally they would be in the 8% to 9% range. So 2009, appears to be breaking loose with buyers entering the market. We will watch this trend in future months to see if this continues and establishes a positive trend for the year.

February of 2009 is also the second highest under contract recorded month in the last 6 years. Last year the Denver area had 5559 homes under contract in February, up from 5216 in 2007, 5128 in 2006, 4192 in 2005 and 4274 in 2004.

Why are people buying in today’s market?

1. Interest Rates - The lowest in 41 years.
2. Foreclosure Advertisements – Brings buyers out because of the greed factor of getting a deal. Once a buyer sees the condition and sees a re-sale home in better condition at similar pricing, the choice becomes obvious.
3. Short Sale Advertisements – Brings buyers looking for the same deal as foreclosure.
4. Inventory is dwindling in lower price ranges and first time buyers do not want to get squeezed out of the potential investment gain.

Look for increased buyer activity putting homes under contract in upcoming months as interest rates continue to stabilize in the 4 to 5% range for conforming loans.

The sold data is the lagging indicator. In the Denver metro area in January, 2017 single family and condo homes closed. This is down 21.46% from one year ago. The main reason for this was the economic uncertainty that occurred in October through January. With new stimulus packages for the economy and housing, people’s confidence in the Denver market will allow them to start buying homes.

Here’s why.

1. Job stability in Denver has been steadier than the national economy. So long as jobs stay strong and Denver unemployment stays below 6.5%, housing in Denver will be a great buy this year.
2. It takes 90 days for under contract data to start to reflect into the sold data. What was written in January and February will close in March and April. The market will experience month over month gains rapidly the next four months and toward the middle of the year to outperform 2008. Once that news happens, markets turn fast and buyers do not want to miss the opportunity.
3. Denver’s economy is more stable than the nation by many economist predictions for 2009.

What does this mean for buyers and what could they do to improve their net worth today?

· Consider buying an investment home below $250,000. These will go up in value this year.
· Move up from your existing residence to a home in an upper price range. This will go up in value over the next 12-18 months and really make an impact on pricing in 3 years.
· Take advantage of low rates.
· Learn how a $15,000 tax deduction in the purchase of a home could save you thousands on your income taxes for 2009.

What does this mean for sellers or homeowners not selling to improve wealth?

· Consider refinancing your higher rate mortgage to a lower rate mortgage and shorten the amortization schedule to pay of the loan sooner. This builds equity, which builds wealth.
· When selling, make your home stand out from the rest by being the best conditioned and fairly priced on the market. buyers are looking for the perfect home at the right price.
· Lower priced homeowners are in the perfect position to sell high and buy a move up home.

Positive signs for 2009