Doug Reynolds

The American Recovery and Reinvestment Act of 2009 isn't limited to the $8,000 tax break for first-time homebuyers. It also established a number of tax breaks for current homeowners who want to improve their home's energy efficiency, according to the National Association of Realtors. Energy-efficient improvements to exterior windows, skylights and doors, as well as certain metal and asphalt roofs, qualify for 30 percent of the project cost up to $1,500. The credit covers installation costs for HVAC, gas, oil and propane water heaters and biomass stoves. These improvements qualify for the credit through December 31, 2010.

Here's a link for more detailed information: energystar.gov/taxcredits

I think this is a great opportunity for homeowners who are looking to upgrade and improve their home. I know i'm going to be taking advantage of it.

There are a number of personal and emotional reasons to buy a home. But there are also some strong financial reasons to make the investment. In addition to exceptional home affordability and near historic interest rates, here are some important financial benefits of owning a home:

Increased Net Worth: Few things have a greater impact on net worth than owning a home. In a comparison of renters versus homeowners, the Federal Reserve Board of Consumer Finance found that the average net worth of renters was just $4,000 compared to homeowners at $184,400.

A Big Tax Deduction: One of the largest tax deductions available is the amount of interest paid on a mortgage. In fact, a $150,000 home at a 5.50% interest rate can add up to approximately $8,000 in first year's interest. This amounts to a significant savings - effectively reducing the amount of a homeowner's monthly loan payment.

Long-Term Appreciation: Over the last few years, home prices have corrected and become more affordable. While that's good news for potential buyers, it has overshadowed the long-term appreciation of a home's value. The reality is, despite market ups and downs, real estate historically appreciates around 6% per year. Even if you calculate a modest appreciation of 3%, a home purchased today for $150,000 should grow in value to $364,000 over 30 years.

$8,000 Tax Credit: Don't forget, the government is offering an $8,000 tax credit for first-time homebuyers - or for folks that haven't owned a home during the past three years. However, the program is scheduled to end soon. In fact, the Internal Revenue Service recently reminded potential buyers that they must complete their first-time home purchases before December 1, 2009 to qualify for the special credit, which means the last day to close on a home and qualify for the credit is November 30, 2009.

NEW YORK (CNNMoney.com) -- More than 1.4 million Americans have already claimed the new tax credit for first-time home buyers, according to a report from the Internal Revenue Service.

The credit, which applies to sales as of January 2009, is good for 10% of the price of a home, up to $8,000, and supporters assert it has helped stabilize the housing market. It's available to anyone who has not owned a home for three consecutive years prior to purchase, and to qualify for the full credit buyers must be purchasing a primary residence, and couples can earn no more than $150,000, while individuals must make less than $75,000.

The credit has been an important stimulus tool for two reasons. It's fully refundable, meaning that even if buyers owe no taxes whatsoever, they'll get an $8,000 check from the IRS. And this refund will put money in consumers' pockets for good, as opposed to the $7,500 first-time homebuyer tax credit that could be applied to sales made between April 2008 and July 1 2009.

Buyers must close on their homes before Dec.1. But because much of the recent uptick in home sales has been attributed to this tax credit, housing industry advocates worry that the market could quickly turn down again after the credit expires.

"Just like the Cash-for-Clunkers program, there could be a hangover effect," said Mike Larson, a real estate analyst for Weiss Research.

That's why housing industry participants are pushing Congress to keep the tax credit in place.

"We're calling for extending the credit until the end of next year and expanding it to all homebuyers," said NAR spokesman Walter Molony. "We do think that housing will recover without it but the market will come back faster and stronger with it."

A spike in sales

Some 1.8 million people are expected to participate in the program by the time it lapses and the National Association of Realtors (NAR) estimates that it will result in an extra 350,000 sales. The NAHB more conservatively predicts 165,000 more home sales than would have occurred. The associations don't want that momentum to slow. The associations don't want that momentum to slow.

"If we don't extend and expand the program, the seeds of growth planted could [die]," said NAHB president Jerry Howard.

There are six bills before Congress that would extend the tax credit, two in the Senate and four in the House of Representatives.

On Wednesday night, Senator Ben Cardin, D-Md., along with Senators John Ensign R-Nev., Harry Reid, D-Nev., Johnny Isakson, R-Ga., and Debbie Stabenow, D-Mic., introduced a bill extending the tax credit program for six months.

Reid released a statement saying, "Yesterday we learned that new home sales have increased in Las Vegas, and that's good news. I hope this credit will build on that so more Nevadans can realize the American dream of home ownership."

Senator Isakson, a former real estate broker himself who has become a leading voice on housing market issues, had introduced his own bill several weeks ago. That would not only extend the credit for a year after it's renewed, it would allow all homebuyers, not just first-timers, to claim it, as long as the property is for a principle residence. The bill would also increase the tax refund to as much as $15,000.

The house bills all extend the deadline through at least the end of December 2009 and two of the bills, introduced by Howard Coble, R-NC and by Dan Burton, R-Ind., would have it run through 2010. They would also open it up to all homebuyers.

Growing support

Sentiment backing efforts to extend the credit appears to be on the rise, according to Jaret Seiberg, an analyst with Concept Capital's Washington Research Group. He put the odds of an extension at 2 to 1. Isakson's version has already attracted 16 co-sponsors, according to his deputy chief of staff, Joan Kirchner.

But the NAHB's Howard, whose background includes extensive tax lobbying, said that he's seen "a couple of red flags lately," threatening to derail any of the bills.

For one thing, the White House has made it known that it is not supporting the extensions. That doesn't mean the administration is against it, it just means that it won't work towards passing any of the bills.

Another hurdle: The growing sentiment among fiscal conservatives that any extension must be paid for by finding savings in some other areas. There has already been $14 billion allocated to the program -- and any extension would surely cost billions more. Finding that money may be very difficult.

Howard contends that while extending the tax credit may be costly, generating home sales can fire up the entire economy.

When people buy homes, especially new homes, they put a lot of cash into circulation. They buy furniture and appliances, new rugs and drapes, do landscaping and painting.

Doug's Take: I have seen example after example of the tax credit working in my daily business life. Over the past months, many buyers have contacted me saying they want to buy a home and they especially want to buy one soon enough to the "the tax creit." If we look back over the last couple of years, unfortunately Real Estate was the main industry to lead us into this "economic crisis/situation." Well, Real Estate is going to be the industry that leads us out of this "crisis" as well. Everyone shares different political views, and while i haven't been in support of some of the governmental spending lately, this is somewhere that i support the government spending some money. Although it is crazy to think about being given money just for buying a home, it is a program that is working and i think it would be in the countries best interest to extend and expand the credit. But with that being said, i think the requirements need to be "tweaked" a bit. I think 10% is a little too generous. The credit needs to be encouraging to the higher range homes and providing the maximum benefit to those in a "move-up" purchase. That way we can get some regular sales on the market so people are inticed to sell and move up into bigger homes in order to get the credit. What do you think?

clear skies,
doug reynolds
www.BuyWithDoug.com

As expected, the Fed did not touch interest rates, but the statement was a market mover. The Fed said they are going to draw out the remaining commitment of Mortgage Backed Security purchases through the first quarter of 2010. There will be no additional buying, but instead, a longer weaning off of the program. This tells us a few things - there was some speculation about the Fed increasing the amount of buying above the $1.25T committed to, and yesterday's statement is a nice way of the Fed saying "no." They will not be buying more, but what they will do is attempt to provide a smoother transition to normal market conditions. It is a given that once the Fed ceases its purchases, that interest rates will climb significantly higher...most likely back above the 6% area. So instead of a hard transition with a large bump in rates, the Fed is attempting to allow rates to gradually rise.

So what does this mean for rates in the short term, and why did the Bond market rally on this news? The rally was more than likely due to the headlines from the media which said that the program was "extended". The markets reacted positively by thinking that the program would stay in place as is for three more months, which would have included more Fed buying. But the gradual reduction in purchases has to bring us to higher rates. The Fed has been buying about $25B per week, but the new plan to drag out these purchases over a longer period of time, means that they will be reducing both the frequency and amounts of their purchases. This will cause higher levels of volatility, as the Fed will be purchasing less often and less consistently. So we will see a gradual rise in rates over time. While we won't be seeing a sudden jerk higher in rates when the Fed buying program comes to an end, it is clear that rates are now going to be on a gradual rise...and waiting to purchase or refinance will mean a higher interest rate.

Doug's Take: This is from a daily update i get about market reports. Basically what it's saying is that rates are LOW right now and are going to be higher in the near future. When the Bond Market goes up, mortgage interest rates go down. Just wanted to give you a heads up if you are considering a home purchase in the near future, interest rates is something to factor into the decision. I've got excellent loan officers available to answer more detailed questions about rates and where they are headed.

clear skies,

doug

An update on the $8,000 tax credit for First Time Home Buyers. White House spokesman Robert Gibbs said this week that the administration is evaluating the program and the effect it has had on home sales and will soon make a recommendation to the President. There is proposed legislation in the House and Senate that would extend the program into next year, and potentially raise the amount to $15,000. The limits on income would also be removed, which are presently $75,000 for an individual and $150,000 for couples. This is just talk right now and may not happen. Nonetheless, it will be interesting to see how this plays out.