NP Dodge Nebraska

Time to Buy: Stimulus gets would-be homeowners moving
BY CHRISTINE LAUE
WORLD-HERALD STAFF WRITER

•	Answers to tax credit questions
•	First-time Buyers Get Moving: 'Much easier to get into a house'
•	Couple more comfortable with prospect of taking the plunge
•	Apartment-dweller tunes in when the talk turns to tax credits

President Barack Obama's stimulus bill, signed into law last Tuesday, already is nudging some first-time homebuyers off the fence.


Chanel and Chad Hill with daughter Lexie, 7, in front of their rental house in Plattsmouth, Neb. The stimulus bill signed into law last week and offering a tax credit for first-time homebuyers has prompted the couple to put an offer on a new home.After months of indecision, Chanel and Chad Hill of Plattsmouth made an offer on a home the same day the law took effect.

If what has happened locally these past few days is an indication of the national reaction, the housing market could begin to turn around. That would be significant because, economists say, the recession started with housing and the recovery must begin there.

Local real estate agents said enactment of the stimulus bill provided direction at a key time. A post-holiday uptick in buying interest and listing activity stalled in the past three weeks as buyers and sellers awaited congressional action - and waited to see whether a proposed $15,000 tax credit for all homebuyers would make it into the final law. In the end, it was an $8,000 tax credit for first-time homebuyers.

The Hills wanted to be homeowners, and they already knew interest rates on mortgages were at historically low levels.

On Tuesday, the signing of the stimulus bill dovetailed with a $27,000 price reduction on a home the Hills had considered a month earlier.

"With all of that together, we decided to go for it," Chanel Hill said. "If we waited to buy a house next year, we miss out on $8,000, which is a lot of money."

Roy Kotz of NP Dodge Real Estate said he had seven potential buyers who were at a standstill before last week but now plan to buy immediately, or at least sometime this year.

"Just the fact that we have an answer gets things moving," said Kotz, who is the Hills' agent.

Realtor Jeff Cohn said an estimated five buyers contacted his NP Dodge team last week.

"The five were on the fence, but when they found out they didn't have to pay it back, they knew for sure they would be writing a contract," he said.

The law allows first-time homebuyers within certain income requirements to claim a tax credit equivalent to 10 percent of the purchase price, up to $8,000, on homes purchased this year between Jan. 1 and Dec. 1. Buyers don't have to repay the money if they don't sell the home within the first three years.

Furthermore, homebuyers can choose whether to claim the tax credit immediately, on their 2008 tax return, or later, on their 2009 taxes.

"That's the exciting part," said Mark Johnson, manager of CBSHome Mortgage. "You don't have to wait until 2010."

It's also a tax credit, which is more valuable than a tax deduction, he said.

The credit "is like an $8,000 gift," said Larry Melichar, president of CBSHome Real Estate. "When you take an $8,000 credit paired with low interest rates . . . plus an inventory that is well-conditioned and priced fairly, you can't get the sun, the moon and the stars to line up better."

While Melichar and others in the business had hoped for a credit for all homebuyers, a credit for first-time buyers still can create a domino effect that will help the economy.

When first-time buyers purchase houses, they free up those sellers to buy other homes, and so on. That works through the surplus of homes, bringing supply and demand into better balance, which stabilizes prices.

"We have fewer properties in the market than we had, and we're going to have more buyers," Melichar said. "That's the switch that needs to take place."

The theory is that ultimately there will be a demand for new homes to be built.

U.S. housing starts and permits fell for a seventh consecutive month in January to record lows, according to U.S. Commerce Department figures reported Wednesday.

New home construction in particular can help the economy, said Barbara J. Byrd, executive vice president of Metro Omaha Builders Association.

"It's key to the economy, because when you build a home, all of the materials come from suppliers across the nation - which puts all those people back to work," Byrd said. "All the plumbing fixtures, the appliances, the carpet, the wood - all those things keep those people working, so it creates a lot of jobs."

The tax credit is not without critics. They argue it could put more people who can't afford mortgage payments into homes.

Melichar and others, however, said the incentives that led to the current wave of mortgage defaults and foreclosures no longer are available. Those incentives included mortgages requiring no down payment, loans requiring no proof of income or creditworthiness, and loans with adjustable rates and short-term teaser rates.

"I think that lending standards, where they are today, will not really enable that bad behavior that occurred in the past," said Damon Riehl, vice president and chief originations officer at First National Bank of Omaha.

First-time buyers need enough money for a down payment, higher credit scores and stronger credit histories, but they shouldn't despair of getting a mortgage, Riehl said.

Riehl said first-time buyers with minimum financial resources have two options: FHA loans, which generally require down payments of only 3.5 percent of the purchase price and are more flexible with credit histories; or conventional loans with mortgage insurance.

Conventional loans without mortgage insurance require about 20 percent down, Riehl said, although some lenders might require as little as 5 percent for borrowers with strong credit and who meet the criteria for mortgage insurance.

Those higher standards shouldn't scare away first-time buyers from taking advantage of the tax credit, Melichar and others said.

"This program is geared to assist good, qualified people to get into a home, with some very special benefits given to them to do it now, to do it this year," Melichar said. "It doesn't change what the underwriting requirements are. It doesn't change credit scores needed. But a lot of people can take it."

The tax credit alone won't pull the country out of recession, said Riehl and others.

Low mortgage interest rates will have a greater impact, he said, because existing homeowners who refinance will have more cash each month for other purchases.

For the first time in decades, the average rate on a 30-year fixed-rate mortgage fell below 5 percent in mid-January, sparking a surge of refinances.

Rates have fluctuated since then, but according to the most recent figures from the Mortgage Bankers Association, the average interest rate for a 30-year, fixed-rate mortgage with 20 percent down was 4.99 percent. (That is with the buyer paying 1.37 points; a point is equal to 1 percent of the loan.)

Cohn, the NP Dodge agent, thinks the turnaround in the housing market could come this year.

"We think because of the stimulus, we're going to double our business in 2009."


444-1183, christine.laue@owh.com

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Yesterday I had the pleasure of joining the expert real estate agents of our 'Oak Street' office for their sales meeting and a great point was made by Estela Torres! This new tax credit afforded to first-time home buyers is better than zero money down. Let me explain...

You are a first-time home buyer (haven't own a personal residence in the past three years) and you bought a home for $150,000 on January 15th, 2009.

Your lender may have required you to put 3% down equal to $4,500.

Your tax credit is equal to 10% of the purchase price up to $8,000. (you get to the claim the full credit of $8,000 given the purchase price of your home)

Let's say your tax liability is $6,000 for the year and you withheld exactly $6,000; you get a refund of exactly $8,000 just for purchasing your home.

Which covers the down payment of $4,500 and leaves a difference of $3,500.

You may even be able to amend your taxes for 2008 to claim your credit on this years return. We urge you to consult with your tax consultant for details.

Earlier in the week I was asked by Christine Laue of the Omaha World Herald how this new tax credit helps us now. Among other reasons this is a great stepping stone to getting the housing market back on track and the example above illustrates how some will take advantage of this opportunity.

Thanks for the great information Estela and thanks for the great food Oak!

Robert Wiebusch~NP Dodge Blog Author

The new First-time home buyer tax credit as we understand it here at NP Dodge...

FIRST-TIME HOME BUYER CREDIT If you are a first-time home buyer, you are eligible for a refundable tax credit equal to 10 percent of the purchase price of your home, up to $8,000. Here are some of the details contained in the 787 billion dollar "American Recovery and Reinvestment Act" which President Obama signed on Tuesday in Denver:

• The fact that the credit is "refundable" means that the tax credit refundable, or claimable regardless of your tax liability
• You must make your home purchase after Jan. 1, 2009, but before Dec. 1, 2009.
• You may purchase a new or an existing home.
• Unlike a similar $7,500, zero interest, fifteen year loan called a "tax credit" that Congress provided last year, you don't have to pay this one back. It is a true tax credit.
• The new credit, however, does phase out for individuals with incomes over $75,000 or married couples with incomes over $150,000 who file their taxes jointly.
• Also, you forfeit the credit if you sell the house within three years.
• "First-time homebuyer" is defined as someone who has not owned a home for the past three years.
• You may participate in a mortgage revenue bond program such as NIFA and still be eligible for the tax credit.

Although this is not tax advice and first-time home buyers are urged to consult their tax advisors, here is an example of how the First-Time Homebuyer Tax Credit could work for you:

Assume you are a couple making less than $150,000 annually, you purchase a house for more than $80,000 before December 1^st of this year and you otherwise qualify for the full $8,000 tax credit. If your 2009 federal taxes were $12,000 without the tax credit, the $8,000 tax credit would lower your federal tax liability to only $4,000. If you had 2009 federal withholdings of exactly $12,000, you would have received no refund without the tax credit because your federal income taxes equal your federal withholdings exactly. But with the first-time home buyer tax credit, you will get a tax refund of $8,000.

"We at NP Dodge Real Estate feel the first-time homebuyer tax credit is a very great stepping stone toward restoring the national housing market and that it will spur greater activity among buyers here locally. When a first time home buyer purchases a home, the seller of that home can then purchase another home. Then seller of that home in turn can buy another, and that creates a cycle that moves us in the right direction. Home prices should stabilize and then begin to increase. This in turn will help increase consumer confidence. All of this will bring still more buyers into the real estate market. This is most definitely the time for first-time buyers to get their piece of the Great American Dream of home ownership." ~ NP Dodge Research and Stats Division Members

The Economic Stimulus Bill (The American Recovery and Reinvestment Act of 2009, H.R. 1.) has been reconciled by the House and Senate. The details of the legislation have not been finalized but we expect the legislation to include a number of important housing provisions, including the remedies for the housing crisis that NAR prescribed at the annual meeting in Orlando, Florida.

Homebuyer Tax Credit - a $7500 tax credit that will be available for qualified purchase of a principal residence by a first time homebuyer between January 1, 2009 and September 1, 2009. The credit does not require repayment. Individuals who purchase in 2009 using financing assistance from state and local mortgage bonds (such as NIFA) will be permitted to use the credit, as well.

FHA, Fannie and Freddie Loan Limits - Revised loan limits for FHA, Freddie Mac, and Fannie Mae. Specifics have not been released but reports indicate that the 2008 limits have been reinstated for 2009 except in those communities where the 2009 limits are higher. Additional increases in individual communities may also be available at the discretion of the HUD Secretary.

Foreclosure Mitigation & Neighborhood Stabilization - Funding for states and local communities to be used for neighborhood stabilization activities for the redevelopment of abandoned and foreclosed homes are authorized. These elements of the American Recovery and Reinvestment Act of 2009 are the pillars of the NAR Housing Stimulus Plan presented to the 111th Congress. Additionally we continue to work closely with the Department of Treasury and Secretary Timothy Geithner to implement a mortgage buy-down program.

NAR also recommended that the Treasury Department expand the Term Asset-Backed Loan Facility (TALF) to include commercial mortgage-backed securities as eligible collateral. The Treasury has approved this recommendation and this will encourage investment in the commercial real estate market.

The Economic Stimulus Bill (The American Recovery and Reinvestment Act of 2009, H.R. 1) Additional Housing and Other Provisions of Interest to NAR:

Rural Housing Service - Increased funding for the Rural Housing Service direct and guaranteed loan programs.

Low Income Housing Grants - Allow states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations.

Tax Exempt Housing Bonds - Tax-exempt interest earned on specified state and local bonds issued during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT). In addition, financial institutions will have greater capacity to purchase tax-exempt state and local bonds.

Energy Efficient Housing - Grants for energy retrofits for federally assisted housing (section 8), funding for Energy Efficiency & Conservation Block Grants to states, and Increases in the residential tax credit through 2010 for certain energy efficient upgrades.

Transportation - Spending for upgrades and repairs of road, bridges and transit facilities.

Broadband Deployment - Grants to make broadband available in underserved communities

Make no mistake-our work with Congress and the Treasury Department is not yet completed, as the leading advocate for homeowners and the real estate industry, the National Association of REALTORS will continue to address the issues facing Americans who are trying to purchase a new home, protect their current home or preserve investment opportunities in residential and commercial properties.

NAR recognizes the efforts of the members of Congress and the Senate who understand that without a housing recovery, an overall economic recovery is impossible.