On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers (FTHBs) through June 30, 2010. The bill also opens up opportunities for others who are not buying a home for the first time.

To learn what the new tax credit means to you, take a look at the concise overview below.

TAX CREDIT OVERVIEW

Who Gets What?

First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?

The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?

Qualifying buyers may purchase a property with a maximum sale price of $800,000.
  
What is a Tax Credit?

A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?

An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible fort FTHB Tax Credit?

Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.

This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?

The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?

No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?

Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.

According to the IRS, factors that would demonstrate the ownership of the property would include:

1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.

Are There Other Restrictions to Taking the FTHB Credit?

Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

• They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
• They do not use the home as your principal residence.
• They sell their home before the end of the year.
• They are a nonresident alien.
• They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?

Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?

Yes, provided that the child meets the other requirements for the tax credit.

but Looming Foreclosures and High Unemployment Are Clouding the Outlook

Excerpts From the Wall Street Journal:

In recent years, real estate has proven as jittery and unreliable as any other market. The average U.S. home price nearly doubled between January 2000 and April 2006, according to the First American LoanPerformance index. Since then, the average has fallen about 30%. The drop has been 53% in the Las Vegas metropolitan area and 39% in Miami, where about a quarter of all households with mortgages are behind on their payments or in foreclosure. The value of your home might be determined more by whether the neighbors keep their jobs than whether the house has ample light and closet space.

Home sales have increased from the severely depressed levels of 2008. The inventory of unsold homes listed for sale also is down. Bidding wars are breaking out for foreclosed homes in the sorts of neighborhoods (near jobs and decent schools) that attract both first-time buyers and investors seeking rental properties.

But more than 6.7 million U.S. households with mortgages, or about 13%, are behind on their payments or are in the foreclosure process, according to the Mortgage Bankers Association. Eventually, many of them will lose those homes, sending more supply onto the market. Unemployment has continued to rise, and the housing market is unlikely to show a sustained recovery until job growth resumes.

While the supply of middle-class homes on the market has declined somewhat, it remains ample in most places. And there is a huge glut of high-end houses for sale in many areas. That means prices of high-end homes might still have a long way to fall.

There probably won't be any clear turning point. Monthly indicators, such as home sales and prices, tend to bounce erratically from month to month, making it hard to discern the underlying trend. And the housing bust will end at different times in different places. House prices already might have bottomed out in the coveted Virginia suburbs with short commutes into Washington, D.C., for instance. But it probably will be years before all of the unsold condos find buyers in parts of Florida.

Generalizations about states or metropolitan areas don't say much about what is happening in your neighborhood. In Summit, N.J., known for good schools and an easy, 45-minute train commute to Manhattan, the median home price in September was up 1.2% from a year earlier, according to Otteau Valuation Group, an appraisal company. In Atlantic City, N.J., which suffers from too much speculative building of condominiums and weak demand for vacation homes, the median price is down about 12% from a year ago.

The Pending Home Sales Index (PHSI) published by the National Association of Realtors increased 6.4% in August. The index has risen for the last seven months. The current increase points to stronger sales in September and October.  The index, which tends to precede closed sales by about two months, rose in all regions of the country.

The PHSI is rebounding quite well as a result of renewed affordability, historic low interest rates, distress sales and the $8,000 tax credit available to some first time home buyers. Foreclosures continue to rise and that is in part responsible for holding prices down. Also significant is that mortgage interest rates slipped under 5% last week. Freddie Mac reported a rate of 4.94%, its lowest rate since May.

In releasing the report, the National Association of Realtors cautioned that sales could be slightly overstated as contracts fall through and buyers write new contracts in the same time period as they scramble to meet the November 30^th closing deadline for the $8,000 tax credit. The tax credit is clearly stimulating sales and the obvious question now is “what comes next?” If Congress does not renew the credit, sales will be negatively impacted beginning in December and carrying into 2010.

Foreclosure filings remain near record highs. While the number of U.S. foreclosures declined slightly in August, they are still 18% higher than a year ago with some 358,471 U.S. households in some stage of foreclosure. That is one in every 357 households. Florida continues to hold the number two spot in the nation behind Nevada for the number of foreclosures. Our local counties also continue to experience a high rate of foreclosure. Osceola County, in Metro Orlando, reported one in 48 households in foreclosure.

St. Lucie and Broward counties reported one in 79 and Palm Beach county reported one in 154. Foreclosures are expected to remain elevated at all geographic levels for the next couple of years and, as we’ve opined before, that will curtail meaningful price increases for the foreseeable future. Foreclosures continue to rise even as the federal government has invested some $75 billion to combat the problem.

Economic Digest — Week of August 10th
A review of select real estate and economic reports from the preceding week
August 15, 2009

The pending home sales index (PHSI) for June was released last week by the National Association of Realtors. The index increased 3.6% in June — the fifth straight monthly increase. The PHSI is usually a good indicator of closed sales volume 30-60 days into the future. Recently however, it has lost some of its predictive power due to a disproportionate number of contracts falling through at the last minute. The unusual level of fallout appears to be the result of buyers’ having difficulty obtaining financing due to both credit issues and property valuations. Foreclosures rose again in July setting a new record for the third time in the last five months. There were 360,149 new foreclosures nationwide according to RealtyTrac.

Foreclosure filings increased 6.74% in July month over month and 32.32% year over year. In Florida, there were new filings at the rate of one in 154 housing units. Locally, St. Lucie County experienced foreclosure filings at the rate of one in 87 housing units while Broward County experienced one in 94. Other Seacoast counties were generally consistent with the state level. Florida had 54,486 new filings in July which is up 6.78% over June and up 23.11% from a year earlier. In terms of the number of foreclosure filings, Florida was second in
the nation behind California and followed by Arizona and Nevada.

Read this entire article here.
Courtesy of Seacoast National Bank Economic Perspectives

July 25, 20009

After nearly three years of gut wrenching house price declines, clear signs of stabilization have emerged. Over the last six months, sales volumes have increased significantly and free falling prices have leveled off in Florida and nearly all Seacoast markets. Nationally, sales of single family detached homes rose 2.4% to about 4.3 million transactions in June while the median price rose to $181,600. Median price is down 15.4% in June year over year but up 4.01% month over month. Median price nationally has been rising modestly each month since the beginning of the year. The story is similar in Florida albeit more volatile. Sales are up 28% but median price is down 28% year over year. Both numbers are up month over month and Florida’s median price in June was $148,000.

Read the rest of this article here.

July 3, 2009

Existing home sales in Florida and most Seacoast markets continued a five month trend toward stability in May. Sales volume increased statewide and in every Seacoast served MSA (metropolitan statistical area). The free falling median price has clearly slowed. Prices statewide and in the Melbourne, Titusville, Palm Bay MSA rose slightly but fell in the Ft. Pierce, Port St. Lucie MSA. The change in other Seacoast served MSAs was negligible at less than one-percent up or down. Sales volume is being driven largely by first time home buyers and investors who are buying in the lower price ranges. Move up buyers remain on the sidelines and higher priced homes remain extremely slow to sell. Foreclosure transactions are keeping a lid on median price increases and will likely continue to do so for some time.

Read the rest of the story here.

The 2009 economic stimulus bill, passed in February, offers first time home buyers a nifty perk: A 10 percent tax credit up to $8,000 for home purchases made in 2009.
The tax credit is limited to buyers who have never purchased a home or those who haven't owned a home in three years.

Last year Congress passed a similar tax credit but there is one significant difference between that one and this new credit: You don't have to pay back the new credit.

In addition this new credit is 'refundable.' That means the credit pays for the taxes you owe and if the credit is more than the taxes owed, you get a check for the difference.

The tax credits make the decision of whether to rent or own a much easier one and it seems buyers are making their move.

The most recent home sales figures (from December 2008) show a 6.5 percent increase in home sales. This surge in home sales, especially in the midwest and south, suggest that tax credits, plus favorable buying conditions have made home ownership very affordable.

Right now interest rates are at 5 percent or lower while home prices are very reasonable. Some experts say the combination has made homes more affordable today than they have been in 20 years. That means you can own a great home sometimes for the same cost as renting.

Homeownership has been called 'The American Dream,' because homeowners take great pride in owning a slice of America. As a homeowner, you can make your home and your lot into exactly what you want, tailoring it to suit your tastes and life style.

What many non-homeowners do not realize is that their home, and the improvements they make on it, increase in value over time. That is one reason why homeowners are worth 35 times more than the average renter. According to David Bach, author of The Automatic Millionaire Homeowner, real estate is the best way to take an ordinary income and expand it.

"As long as you're alive, you have to live somewhere. Why not let where you live make you rich?" Bach writes.

A new index by the National Association of Realtors shows that many more people can afford to buy a home today, more people, in fact, than in more than the previous 20 years. It recently set the affordability index at 158.8.

That means a household earning the median family income of $61,058 would have 158.8 percent of the qualifying income to purchase the median-priced existing single-family home ($174,700) with a 20 percent down payment.

When buying that particular home, after a 20 percent down payment, the monthly payment on a 30-year mortgage at 5 percent interest would be about $750 per month.

When buying a home for $100,000 with a 20 percent down payment, the monthly payment on a 30-year mortgage at 5 percent interest would be about $430 a month.

Many homes in various parts of the country could be purchased for $75,000. With a 20 percent down payment, the monthly payment on a 30-year mortgage would be only $322.

Homes can often be purchased with a down payment of less than 20 percent, but the buyer would have to take mortgage insurance, which raises the amount of the monthly payment.

Still, there hasn't been a better time to buy a home in many years.