Seth Peterson

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.

I finally read some REALTOR magazines from this past year, and there were some good articles in the April issue. One was about staging a house on a small budget. Here's a quick summary:

EXPAND THE CLOSET - Remove the clothes you rarely wear. Try to create some space so the closet doesn't look cluttered

CREATE A BED - If you have a vacant bedroom, you can "create" a bed by putting some empty boxes together and covering it with nice bedding

CLOSE IT UP, EXCEPT SUNLIGHT - Close all the drains, sinks, toilets. Close closet doors. But leave the shades open for sunlight!

GO GREEN - If you have some "green" features already (like energy efficient appliances/mechanicals), then continue the theme throughout the house with strategically placed soy candles, homemade guest soaps, green cleaning products under the sink, etc.

ADD SOME LIFE - Put a large plant in the most visible corner. Silk trees are a good option. Even think about putting a spotlight behind the tree. Also, place fresh flowers in the kitchen for open houses, or if you know you have a couple showings coming up.

SET UP A CHAT ROOM - Position the living room furniture for conversation as well as entertainment.

ADD BATHROOM ELEGANCE - Get some decorative hand towels, tie a sheer ribbon around them, and place them on towel racks in all the bathrooms. Perhaps try doing it with your current towels if you think it looks good enough. For the towels that you use, buy new ones if they don't look new/clean. Buy a nice soap dispenser to go next to the sink.

NIX THOSE PERSONAL PHOTOS - Put most of the personal pictures away. Try to get the buyer to focus on the house, not you!

REDO THE DOGHOUSE - Freshen & consolidate pet areas. Buy new food & water bowls. Choose one place for beds, litter boxes, etc - and try to put them in out-of-the-way places. And clean before all showings!

BRIGHTEN IT UP - Replace the lightbulbs in the home with higher wattage bulbs (remember to stay within the guidelines of your lamps, though!). You want your house to be "Light & Bright."

FRAME A LOCAL SCENE - Put a few pictures up of local scenes. You don't want buyers thinking about other cities or vacations...keep them focused on their mission of buying a home - hopefully your home!

GET THEM AT THE ENTRANCE - Pay attention to the details of the entrance. First impressions are important! Re-stain, paint and/or varnish trim & doors. Make sure the doors open and shut correctly, and knobs aren't loose.