Recently, I was invited to speak to a high school business class on the topic of real estate, home values, the $8,000 tax credit and the economic stimulus program in general.
To start my presentation, I asked for questions from the students. What questions do they have about real estate, etc.? What do they want answers to?
One young man spoke up: What's the big deal about home prices? I keep seeing it on the news that home prices went up or down, but so what? They don't mean anything to me because I don't own a home.
"Let me come back to that question later," I replied, and collected a few more questions from the audience before presenting some facts about buying a home, the tax credit and so on. Eventually, I came back to the question the young man had asked at the beginning.
"So, why are home values important to you?" I asked, "First, let me ask if you have a job; do you work part time after work"
"Yes," he replied, "at the restaurant down the street, washing dishes. Been there since I was fifteen."
"So you've been there a few years now," I said,"and have you been working as many hours lately as you were, say, three years ago?"
"Not really" he said, "about half as many as when I started. I used to work the breakfast shift from 5:30 till 7:00 but I don't any more."
"I see," I went on,"and why don't you work breakfast any more?"
"Well, because the guys who used to come in before work aren't coming in."
"And what did these customers do for a living?"
"Construction guys, mostly -- builders, carpenters, drywallers, painters."
"Uh-huh," I continued, "and why aren't they coming in now?"
"They haven't had any work."
"Ah-hah!" I replied. "So, let me connect the dots. Building trades workers are out of work because nobody is buying new homes, right? Why? Because in order to buy a new home, a buyer needs to use the equity in their home to make a down payment on the new home, you follow? And because prices have dropped so dramatically, those homeowners would would like to buy cannot buy because they have lost too much equity in their homes. So they're stuck where they are and those construction guys who are out of work don't have the money to come into your restaurant for breakfast so YOU GET LAID OFF. Are you starting to see why home prices are important not just to you but to everyone in our economy?"
"If homeowners lose the equity they have built in their homes, they can't "buy up" or downsize. They must stay put and the real estate market stagnates. Homeowners don't go out to the hardware store to fix their home up to get it ready to sell -- new paint, carpet, countertops, new cupboards, etc. -- nor do new home purchasers go out to the appliance stores to buy new refrigerators and furniture for their new home. People who work for those retailers get laid off, too, so they can't buy houses, or cars, or appliances, or go to dinner at your restaurant.
When real estate grinds to a halt, so does a multi-billion dollar segment of our nation's economy. It impacts everything from retail sales, to jobs, to new home starts, construction projects (like finishing a basement or adding on a room). It causes companies engaged in those businesses to cut back on personnel and people without jobs don't have money to spend on necessities, let alone dinner out."
"Now do you see why home prices are important to YOU?"I asked.</p>
<p>Original article: <a href='http://factoidz.com/why-are-real-estate-values-so-important/' title='Why are real estate values so important?'>Why are real estate values so important?</a> - written by Don Phelan on <a href='http://factoidz.com'>Factoidz</a></p>
“Well, because the guys who used to come in before work aren’t coming in.”
“And what did these customers do for a living?”
“Construction guys, mostly -- builders, carpenters, drywallers, painters.”
“Uh-huh,” I continued, “and why aren’t they coming in now?”
“They haven’t had any work.”
“Ah-hah!” I replied. “So, let me get this straight. Building trades workers are out of work because nobody is buying new homes. Why? Because the house they need to sell in order to buy a new home isn’t selling (or won’t sell for a price high enough to have any equity left to put down on their next home), right? So those construction guys who are out of work don’t have the money to come into your restaurant for breakfast so YOU GET LAID OFF. Are you starting to see why home prices are important not just to you but to everyone in our economy?”
“If homeowners lose the equity they have built in their homes, they can’t “buy up” or downsize. They must stay put and the real estate market stagnates. Homeowners don’t go out to the hardware store to fix their home up to get it ready to sell – paint, carpet, countertops, new cupboards, etc. – nor do new home purchasers go out to the appliance stores to buy new refrigerators and furniture for their new home. People who work for those retailers get laid off, too, so they can't buy houses, or cars, or appliances, or go to dinner at your restaurant."
When real estate grinds to a halt, so does a multi-billion dollar segment of our nation’s economy. It impacts everything from retail sales, to jobs, to new home starts, construction projects (like finishing a basement or adding on a room). It causes companies engaged in those businesses to cut back on personnel and people without jobs don't have money to spend on necessities, let alone dinner out."
“Now do you see why home prices are important to YOU?” I asked.
Original article: Why are real estate values so important? - written by Don Phelan on Factoidz
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Forward this e-mail to your friends, family, co-workers and ask them for their support, too! |
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The information below has been distributed by the National Association of Realtors and may be of interest to you regarding the latest on the extension and or expansion of the home buyer Tax Credit. If you want to see home values improve, write your Senators and Representatives to support this legislation! Carl Levin: senator_levin@levin.senate.gov Debbie Stabenow: Vern Ehlers:
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Will the Home Buyer Tax Credit Be Extended or Expanded? The shape of a final tax credit package has remained in flux since Tuesday. As the media has reported this morning, however, there appears to be an agreement on the details of an expanded and extended credit, but NO VOTE has yet occurred. This is important to note: The extension/expansion has NOT been passed and we do not know for sure that it will. Note also that anti-fraud measures have been added to this bill. Following is a brief overview of the proposal in its present state: The Extended and Expanded Tax Credit agreement includes the following provisions: Who: First-time homebuyers -- same definition as current law Amount: $8,000 Who: Repeat purchasers. Must have used previous home as a principal residence for 5 of the 8 previous years. Amount: $6,500 Income Limits: $125,000 for single filers/$225,000 for joint filers. Same for both first-time and repeat/move-up buyers. Time Frame: December 1, 2009 to April 30, 2010 plus 60 Day extension if binding contract is in place by April 30, 2010. |
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Please keep this in mind: Housing values have plummeted in virtually every region of the country. Maintaining a healthy, stable real estate market is essential to America's economic well being, consumer confidence and creating jobs. This legislation, if approved, will have considerably more impact on improving home values than the $8,000 tax credit to first-time home buyers did. By contrast, this legislation would effect a majority of home purchasers instead of a relative few. It would help to recoup equity lost by homeowners who have lived in their homes for 5 years or more and will shore up a sagging "buy up" market. Here's an example: Imagine the homeowners who have lived in a home for 6 years. They bought their "starter home" at the peak of real estate values and now have suffered a considerable loss of equity. They may still have some equity though, and today, their family has grown and their darling starter home is bursting at the seams. The $6,500 tax credit may not recoup all of their lost equity but if might be enough to cover closing costs on the sale of their existing home or on their new home. Or, this example: Five years ago, Mr. and Mrs. Baby Boomer were planning to "go condo." The kids were grown and have families and homes of their own. But the nest egg of real estate equity they had in their family home five years ago had dwindled and they have elected to stay put rather than buy the retirement condo of their dreams. This legislation could have major, positive impact on condominium values. |
HOT OFF THE PRESSES!! The IRS has just released a new form (Form #5405) to deal with the new $8,000 tax credit and it appears buyers WILL be able to claim the credit on their 2008 taxes if they close on a home prior to submitting their 2008 taxes (on or before April 15, 2009).
As always, it is best to consult a tax attorney or CPA for verification on whether the credit can be claimed on your 2008 taxes.
Based on reviewing the new form, it appears to me that a home purchased in 2009 will be eligible for this credit in the filing of tax returns for 2008's income (See "Homes purchased in 2009"). Thus, it may be possible that the $8,000 (Non-repayable) tax credit could more than offset the 3.5% investment necessary for down payment - even before the purchaser's first house payment becomes due. As with most closings in March, the buyer's first house payment would not be due until May 1st. Additionally, a first-time home buyer could put $2,800 down on a $80,000 home (3.5%), and receive the $8,000 tax credit after filing their 2008 Federal tax return before April 15th, 2009.
If you know someone who has not owned a home in three years, they qualify as a first-time home buyer and this tax credit would apply to them. Please forward this blog post to them or have them call me at 616-648-0800 or 616-791-0110 ext. 2121 or e-mail donaldrphelanjr@ameritech.net
In all of this talk of foreclosures, bailouts, short sales and refinancing, what is sometimes lost is that money spent buying real estate is an investment, and, like any investment,its value can go up or down. Why is the prospect of losing our homes so damaging to our economy but even more devastating to our national psyche?
Stock prices plummet and you lose money. You knew the risk ... or should have. It may break the bank but it doesn't break your heart.
Homes are different. A home is the only investment most Americans make which keeps them warm at night. It is the only investment they can raise their children in or watch their daughter walk down its stairs in her first prom dress. It is the only investment we invite guests into it kitchen so that we may gather 'round and toast to good fortune. It is one of a handful investments whose value we can influence by our decorating taste or green thumb. It is the only investment most of us will put our hearts and souls into in the hopes it will keep us safe and protected throughout our lives.
I grew up a in a generation urged to buy a home as soon as possible; a generation baptized with the American Dream of home ownership. How many of us heard throughout our lives that a home is most people's single largest investment and real estate has a long history of appreciating in value. In all those years, how many times did you hear, "You know, if you buy a home, it might go down in value 30 or 40%?"
Now, real estate as an investment, has let us down, and it's not just our loss of equity which causes deep emotional pain. It is the loss of our investment foundation. It is the loss of one of life's certainties; historically, homes were the one investment we could count on.
Most importantly, though, it is the loss of a dream. Will future generations be quite so enthusiastic about home ownership? Will young couples scrimp and save to buy their first house? Will homes ever again be seen as the centerpiece of building wealth?
In all this talk of foreclosures and bailouts, as nation, we will never again doubt that any investment, including real estate, can go up or down in value. And as a society, we may never trust our hopes for the future to the American Dream of home ownership.
There seems to be a great deal of confusion over the $8,000 tax credit for home buyers which President Obama plans to sign into law tomorrow. Who qualifies for the tax credit? Is it for anyone or is it limited by income? Will I be required to repay the tax credit? When must I buy to get the tax credit?
Here is a chart to help understand the changes with the bill being signed tomorrow by the President. If you have any questions, call me! 616.648.0800, e-mail me: don@donphelan.com, or sign up for one of my upcoming seminars on HOME BUYING! Just click here!
If you know someone who could benefit from this FIRST-TIME HOMEBUYER TAX CREDIT (have not owned a home in the past 3 years), please FORWARD THIS INFORMATION TO THEM!
FIRST-TIME HOMEBUYER TAX CREDIT
FEATURE CREDIT AS CREATED JULY 2008 APPLIES TO ALL QUALIFIED PURCHASES ON OR AFTER APRIL 9, 2008 REVISED CREDIT - EFFECTIVE FOR PURCHASES ON OR AFTER JANUARY 1, 2009 AND BEFORE DECEMBER 1, 2009 Amount of Credit Lesser of 10 percent of cost of home or $7,500 Maximum credit amount increased to $8,000. Eligible Property Any single family residence (including condos, co-ops, townhouses) that will be used as a principal residence. No change. All principal residences eligible. Refundable Yes. Reduces (or can eliminate) income tax liability for the year of purchase. Any unused amount of tax credit refunded to purchaser. No change. Purchasers will continue to receive refund for unused amount when tax return is filed. Income Limit Yes. Full amount of credit available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). Phases out above those caps ($95,000 and $170,000). No change. Same income limits continue to apply. First-time Homebuyer Only Yes. Purchaser (and purchaser's spouse) may not have owned a principal residence in 3 years previous to purchase. No change. Still available for first-time purchasers only. Three-year rule continues to apply. Revenue Bond Financing No credit allowed if home financed with state/local bond funding. Purchasers who utilize revenue bond financing can use credit. Repayment Yes. Portion (6.67% of credit or $500) to be repaid each year for 15 years, starting with 2010 tax filing. No repayment for purchases on or after January 1, 2009 and before December 1, 2009. Recapture If home sold before 15-year repayment period ends, then outstanding balance of repayment amount recaptured on sale. If home is sold within three years of purchase, entire amount of credit is recaptured on sale. Applies only to homes purchased in 2009. Termination July 1, 2009 (But note program changes for 2009) December 1, 2009. Effective Date Purchases on or after April 9, 2008 and before January 1, 2009. Repayment to begin for 2010 tax year. All revisions are effective as of January 1, 2009.
As modified in the American Recovery and Reinvestment Act.
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