RISMEDIA, July 22, 2009-The federal tax credit for first-time home buyers is now half way to its Dec. 1, 2009, expiration date, and it seems fair to ask just how much it is helping real estate markets. The RE/MAX network in northern Illinois did just that, interviewing 40 RE/MAX agents from across the region about how the tax credit is impacting the first-time buyers with whom they work. "The overall conclusions we draw from the survey are twofold," said Jim Merrion, regional director of the RE/MAX northern Illinois real estate network. "First, buyers are generally aware of the fact that there is a tax credit available. However, a majority of them understand only a few, if any, of the program's details.
"Second, the tax credit has a stimulative impact, but the effect is primarily psychological. Buyers want to get the benefit of the tax credit, and that encourages them to act, but the tax credit doesn't have much impact on how much first-time buyers can afford to pay for a home," said Merrion.
The tax credit was a key part of the economic stimulus package approved by Congress and signed by President Obama in February. Designed to encourage home purchases, it can be worth as much as $8,000 in reduced taxes or added income.
The 40 RE/MAX agents interviewed for the survey estimate they worked with 390 first-time buyers through the first half of 2009. Seventy-three percent of those buyers were aware of the tax credit even before meeting with the agent. To date, approximately 18% of the 390 buyers have either purchased a home or have had an offer accepted and are preparing to close the transaction. Most of the remaining buyers are still in the market looking for the right home.
"The fact that the tax credit expires at the end of November should begin to get more and more of them off the fence and into a home in the next few months," said Merrion. "In responding to our survey, the agents we interviewed said a majority of buyers see the tax credit as a major motivation to buy this year even though they can afford to buy a home without it. For others, it merely reinforces their existing decision that this is the time for them to buy," he said.
During the first-half of 2009 in the metro Chicago real estate market, the average price of a home was $259,354, according to data from the MRED multiple listing service. The $8,000 credit equals 3.1% of that amount. That helps explain why the survey indicated that the tax credit is having a major impact on affordability for only 17% of buyers.
For the majority of qualified buyers, said the RE/MAX agents interviewed, the tax credit provides a financial boost by replenishing the savings they use for a down payment and closing costs or covering some of the incidental expenses that often come with purchasing a first home, whether that involves buying a lawn mower, putting up wallpaper or acquiring new furniture.
The survey also revealed that many first-time buyers don't have a firm grasp of the details of the tax credit.
-Most buyers knew there was a date by which they had to act in order to qualify for the tax credit, but many are confused about when that was and what they had to do. A home purchase must be closed no later than Nov. 30, 2009 to qualify for the credit.
-Many buyers do not realize that to qualify as a first-time buyer you can have owned a home previously as long as you have not have owned a home for three years before making a home purchase that qualifies for the tax credit.
-A large percentage of buyers also are unclear about the fact that they will receive the full benefit of the tax credit to which they are entitled even if they don't pay that amount in income taxes for 2009. For example, if an individual or couple qualifies for the full $8,000 credit but owes only $3,000 in income taxes for the year, their entire tax bill would be eliminated, and they would also receive a tax refund check for $5,000.
-Another area of confusion, but one that the RE/MAX agents report as affecting relatively few first-time buyers, involves income limitations. Individuals with an adjusted gross income up to $75,000 can qualify for the full $8,000 credit, as can married couples earning up to $150,000. The available credit amount then declines as income increases and phases out at $95,000 for individuals and $170,000 for couples.
For many buyers, another aspect of the tax credit that is confusing is the possibility of repayment. An earlier version of the first-time buyer tax credit did have to be repaid, meaning that it functioned like an interest-free loan. The updated version of the credit approved this year eliminates the need for repayment unless the home is sold within three years, in which case the credit must be repaid.
"There is talk in Congress about increasing and/or extending the tax credit and making it applicable to all home buyers, not just those purchasing their first home," reported Merrion. "That would be a great help to the housing market, which continues to face significant headwinds in this soft economy. However, for first-time buyers, we see very limited value in waiting and hoping that Congress will act again. If a home purchase is on their radar today, our advice is to start shopping seriously and close on a great new home before Dec. 1. To do that, they will want to get the house under contract by Sept. 30 so they have ample time to close the transaction."
For more information, visit www.remax.com.
RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com
https://www.thinkbigworksmall.com/public/showArchiveVideo/1/4909
Our Floundering real estate recovery has a deadly new threat. As if the economic crisis and the woes of the financial and mortgage lending industries hadn't already taken enough prisoners, now the government imposed regulation of the Appraisal industry will wreak further havoc on the fragile real estate market throughout the US.
Effective May 1, 2009 the HVCC guidelines began to govern the process of appraising property for the purpose of a mortgage. HVCC or the Home Valuation Code of Conduct requires in many instances that an appraisal is ordered through an AMC or Appraisal Management Company rather than a lender. These are national companies who assign appraisals by rotation to national appraisers who sometimes may not even be licensed or certified. The Code forbids contact by the lender or realtor with the appraiser to discuss comparable properties or problems.
Yes, this means that an appraiser in Detroit, Michigan might be assigned a property in Raleigh, NC to appraise. They rely on a local appraiser to take pictures, etc. but they do the appraisal. The AMC charges the usual fee to the consumer, but keeps 40% of the funds internally. What a mindless system!! What a disaster for the buyer, the seller, the lender, and the realtor who against all odds have negotiated a contract in this market only to have an unqualified RANDOM appraiser in Detroit, Michigan destroy their work with a low appraisal. It's happening many times daily all over the country and how unfair to everyone involved, especially the highly qualified appraisers all over the country that have built careers and companies based on their professionalism and years of knowledge and experience. It must be stopped NOW.
Please click on the link at the beginning of this blog for more information on this travesty and link to a national petition to stop this madness. Our industry and the economy of this country can't survive this insanity.
Consumers have become more concerned about their credit scores these days, especially when a better score can result in lower credit interest rates and whether you can get approval at all on home loans. With this in mind, many consumers are more aware of their credit and, unfortunately in the process of trying to improve their score, sometimes are harming their credit score.
In a recent article, Jeff Mandel and Marlin Brandt, the owners of ApprovalGuard, cite good examples of how you can harm your credit rating. They said, "Take a recent client we will call "Rachel." Rachel was reviewing her credit and decided to close her eight-year-old VISA credit card with a credit line of $18,000. She didn't use the card but once or twice a month and had two other major bank cards that provided "rewards points." So to keep her credit record "clean" she decided to cancel the card. The next month she found out that this one decision cost her 87 points on her credit score, dropping it from 752 to 665."
This story happens way too often and is typical for how most people manage their credit by trial and error. Over a lifetime, many people eventually build up some decent credit; however, that same level of credit could have been achieved so much earlier in life with guidance and help.
According to them, a consumer credit score is made up of five key components:
- Payment History - 35% Types of accounts (credit card, mortgage, etc.), accounts paid as agreed, number of past due accounts, etc.
- Amounts Owed - 30% Balances of current loans, debt-to-credit ratio, proportion of installments still owed, etc.
- Length of Credit History - 15% Time since accounts opened, last activity, etc.
- New Credit - 10% Recent inquiries, new accounts, etc.
- Types of Credit Used - 10% Mortgages, credit, retail, etc.
In Rachel's case, the major bank credit card she canceled was paid on time every month for eight years. She didn't use credit a lot, and this particular credit card represented the best contribution to the amounts owed and length of credit history category. Although Rachel had two other major bank credit cards that offered rewards points, they were only months old and had only been used intermittently, giving them much less value on her credit score. Next to her mortgage loan, the eight-year-old VISA credit card was her strongest piece of credit. Consequently, the other newer cards also had higher interest rates and yearly fees than her VISA card.
Contrary to popular belief, credit scores do not penalize you for having too much available credit. With this in mind, it's better to preserve your credit score with 15 years of established credit history and old accounts in good standing than to have fewer and newer open accounts. Major bank credit cards have more impact on your credit than, say, a department store card.
Further, Mandel and Brandt say that closing a credit card can greatly affect your credit scores; however, sometimes you may have no choice. Credit cards that are unused or rarely used can have their credit line reduced or may even be closed without your approval by the credit card company. This can affect your credit score just as much as canceling the card yourself.
Jeff Mandel is president and Marlin Brandt is COO of ApprovalGUARD.
For more information, please visit www.ApprovalGUARD.com.
RISMEDIA, June 1, 2009-RE/MAX Monthly Housing Report, a survey of 55 metro areas across the country found that April sales of residential properties were up an average of 6.3% from March, and up 4.7% from April, 2008. The report shows that for the last six months home prices have been 20% to 24% below the previous year. April's median home price was $182,913, down 0.7% from March, but still down 21.9% from April, 2008.
An impressive 44 metropolitan areas experienced a monthly increase in sales, with 16 metros experiencing double digit increases. The largest annual increase in residential sales occurred in those markets that have experienced significant price declines. Las Vegas saw an 84.9% increase in sales from last year; Phoenix was up 79.4%, Miami was up 56.2% and Los Angeles was up 47.2%.
"There's no question that the tax credit is drawing a lot of first-time homebuyers into the market, making up roughly 50% of today's homebuyers," said Margaret Kelly, chief executive officer of RE/MAX International, Inc. "This is absolutely the best buyer's market we've ever seen; interest rates are down, prices are low, and selection is terrific."
Despite high foreclosure rates, the report indicated that the inventory of homes declined 11.7% from last year, with the average supply of homes at 8.1 months. Although the national median sales price remained nearly unchanged, of the 55 cities included in the report, 28 experienced an increase over the previous month.
"The higher priced homes will not start selling until jumbo loans are more easily available to the consumer. Another means for raising home prices is to reduce the inventory of homes through a process known as short sales," said Kelly.
Many in the real estate industry are optimistic that the recent announcement by the Treasury Department will facilitate a streamlined short sale process that will assist families facing foreclosure. Homeowners should understand that if they owe more on their mortgage than their home is currently worth and if they cannot qualify for a loan modification, they can still avoid a foreclosure. They should contact their lender or real estate agent to see if a short sale is possible.
RE/MAX is a strong proponent of the short sale as a foreclosure alternative, and has trained nearly 5,000 of its sales associates in the last 60 days to assist homeowners in this process. These associates have undergone specific training to earn the Certified Distressed Property Expert (CDPE) professional designation.
The April 2009 Associated Press-RE/MAX Monthly Housing Report includes data from 55 metropolitan areas, representing nearly all 50 states and represents transactions for all residential property types across entire metropolitan areas. The report is distributed about the 25th of each month.
For more information, visit www.remax.com.
In his speech at the National Association of REALTORS® Housing Summit on May 12, 2009, US Department of Housing and Urban Development (HUD) Secretary Shaun Donovan announced a program that allows borrowers to use the first-time homebuyer tax credit for a down payment or closing costs on a FHA-insured mortgage. The Secretary said "We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit."
The details of the program were announced today in Mortgagee Letter 2009-15. A government entity and instrumentalities of government may provide a second mortgage. Currently, 10 state housing finance agencies offer a product buyers can use that will effectively monetize the tax credit for down payment purposes. These states are Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee. State Associations are encouraged to work with their respective housing finance agency to implement similar programs. The 3.5 percent down payment may also be a gift from a family member, employer or nonprofit, charitable organization.
The original guidance permitted lenders and HUD-approved nonprofits and lenders to offer bridge loans via second lien financing or short term loans. Guidance released today allows lenders to offer the monetized tax credit for down payments in excess of 3.5 percent, closing costs and interest rate buy downs. Mortgage industry leaders have indicated that this type of product may not be immediately available to consumers. Lenders will need some time to develop documentation for what will effectively be personal loans to the home buyer.
Read the HUD Mortgagee Letter at http://portal.hud.gov/pls/portal/docs/PAGE/FHA_HOME/LENDERS/MORTGAGEE_LETTERS/2009_MORTGAGEE_LETTERS/09-ML-15%20USING%20FIRST-TIME%20HOMEBUYER%20TAX%20CREDITS.PDF
For information on FHA contact Jerry Nagy at 202.383.1233, jnagy@realtors.org.
For information on the IRS contact Ken Trepeta at 202.383.1294, ktrepeta@realtors.org.
For information on state issues contact Bill Gilmartin at 202.383.1102, wgilmartin@realtors.org.
Jerome M. Nagy | Regulatory Policy Representative
National Association of Realtors® | 500 New Jersey Ave., NW, Washington, D.C. 20001
With over 30 years of experience and hundreds of sales, we can help guide both buyers and sellers smoothly through most any residential real estate transaction.
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