Seth Peterson

The 3rd quarter of 2009 saw the first increase in Wisconsin home sales since the recession began in the 4th quarter of 2007. Compared to the 3rd quarter of 2008, existing homes sales increased 5.8%. This surge in sales is largely credited to low mortgage rates and the $8,000 first-time home buyer tax credit.

Wisconsin's home sales increase compared favorably to the country as a whole, which saw a 5.9% increase. The Midwest region was at 5.2% increase.

Although sales increased, the median home price in Wisconsin fell 6.3% in the 3rd quarter of 2009 compared to same period of 2008. The national reduction in median price was at 11.2%, so Wisconsin managed much better than the national average. It is likely that a part of the reason for this decrease was a depreciation in house values, but another reason may be the abundance of lower priced homes being sold due to the first-time home buyer credit. With this in mind, Flor stated "Wisconsin home prices are not nearly as volatile as we have seen in other parts of the country and so purchasing a home in Wisconsin remains a very stable way to build household wealth."

John Flor, Charman of the Board of the Wisconsin Realtors Association, sees a bright future for the economy as we head into 2010: "The extension and expansion of the federal tax credit is not only good news for home buyers and sellers, but also for the economy as a whole. Families buy a wide range of goods and services after they purchase a home, which helps the entire local economy, and sales of starter homes create opportunities for sellers to trade-up to a new or more expensive home."

Here is the full WRA article

Obama signed an Unemployment Insurance bill today, which included provisions to extend the first-time homebuyer credit of $8,000 and create a new homebuyer credit of $6,500 for repeat buyers. News article

This will almost certainly give a boost to the real estate market, as now many current homeowners have incentive to move to a new home. Many homeowners have been hesitant to move, because they aren't comfortable with selling in this market which has depreciated the past couple of years. But the incentive of a free $6,500 should change some minds. Especially considering the house they will be buying should also have a depreciated price, and interest rates are near all-time lows.

The basic details of the New Homebuyer Tax Credit:

• First-time buyer is defined as someone who has not owned a home for the past 3 years.
• First-time buyers receive $8,000 tax credit.
• To qualify for the $6,500 tax credit, you must have owned a primary residence for at least 5 of the previous 8 years.
• You do not qualify if your income is $125,000 or more ($225,000 for married couple)
• You must have an accepted offer by April 30, 2010, and closing must be no later than June 30th, 2010.
  
• Both of these tax credits are such that you actually get cash from the government (unless you owe money after doing your tax returns, in which case you would owe less money thanks to the $8,000 or $6,5000 credit)

For a couple of great resources about the new homebuyer credit, go to www.searchmadisonmls.com and click on the "Homebuyer Tax Credit" tab.

Here is a simple explanation of Mortgage Backed Securities, so you can understand the concept. Mortgage Backed Securities can certainly vary from and be more complex than this...

1) Someone buys a house, and to obtain the money to purchase the house, they get a mortgage loan from a bank. So over the next 30 or so years, they will owe the bank the total loan amount (principle) PLUS interest payments.

2) This bank gives out a lot of mortgage loans to different people. Let's say 1,000 mortgage loans.

3) The bank then sells these 1,000 loans to an Investment Bank. So now all the interest and principle payments will go to the Investment Bank.

4) The Investment Bank creates a separate company, specifically a corporation. They transfer the 1000 loans to this new corporation. So now all the interest and principle payments will go to this new corporation.

5) The Investment Bank issues shares of ownership in the corporation (which are called securities…i.e. stocks). These securities are then sold in the free market.

6) Each owner of one of these securities will get a part of the cash flow from the loan payments that are now being paid to this corporation.

7) These securities are called Mortgage Backed Securities. They are securities which are backed by mortgage payments. Hence the wikipedia definition: "A mortgage-backed security (MBS) is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property."

The SEC's explanation of Mortgage Backed Securities

The current homebuyer tax credit is $8,000 for first-time home buyers who close by November 30th, 2009. Last week the Senate agreed to extend this $8,000 tax credit for first-time homebuyers PLUS offer a $6,500 tax credit to repeat buyers who have owned their current home for at least five years. The proposed bill states that the homebuyer must have an accepted offer by April 30th, and closing by June 30th.

The first-time homebuyer tax credit was a huge success in 2008, with 350,000 first-time buyers nationally saying they would not have otherwise purchased a home this year (according to National Association of Realtors). But the total volume of house & condo sales in Dane County was still lower for the first 3 quarters of 2009 (4,229), compared to 2008 (4,461) - and both years are significantly lower from 2007 (5,650).

I think the $6,500 tax credit to repeat buyers will do more to stimulate the real estate market. House values have depreciated, and many homeowners have not been able to purchase a new home because they aren't comfortable selling in this market. The $6,500 tax credit will move many of these people to sell and purchase a new home. With these repeat buyers AND first-time homebuyers standing to receive a "free" tax credit from the government, there is a great chance for a significant increase in house & condo sales.

The proposed bill is awaiting approval from the House of Representatives.

If you would like to search current homes for sale in Madison WI right now, then visit www.searchmadisonmls.com.

From 1980 - 2000, home values appreciated at a rate of 26.5% every 5 years. Each 5 year increment was close to that number, ranging only from 25-29%. Then something strange happened after 2000 - home values appreciated 89% in the following 6 year period! This 89% increase in home values was simply unsustainable. The market's recent decline is a move towards stability and a healthier market.