Tax Credit Changes Could Unleash Home Sales
If all home buyers become eligible for a tax credit without a repayment feature, it could result in an additional 555,000 home sales, enough to meaningfully draw down excess housing inventory, the NATIONAL ASSOCIATION OF REALTORS® says.
An evaluation of options for a home buyer tax credit by NAR shows wide ranging implications and benefits. A full credit to all buyers means an additional 2.22 million households would meet the income requirements for purchasing a home, but only one in four of those households would actually make a purchase.
Under the current $7,500 first-time home buyer tax credit, which must be repaid over 15 years, 264,000 households meet the purchase requirements. Using the same assumptions, with plans to hold their home for a median 10 years, it would mean only 66,000 additional sales.
Lawrence Yun, NAR chief economist, said NAR is advocating a tax credit for any home purchase meeting qualifying underwriting standards. “A home buyer incentive is critical to help reduce housing inventory and stabilize home prices,” he said. “The bigger the incentive, the faster housing can help pull the economy out of recession. The cost to the Treasury would be far less than the additional costs of a prolonged recession with insufficient housing stimulus.”
Analysis of other options shows that if only first-time buyers are eligible and the repayment feature is dropped, it could mean an additional 202,000 home sales. If extended to all home buyers but the repayment feature is retained, the gain would be 181,000 home sales.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said a flexible approach to the tax credit would have added benefits. “A home buyer tax credit also should be allowed to be used as a part of downpayment. This would instantly add an equity cushion for homeowners – a vested financial interest provides the foundation for sustainable homeownership, which helps improve economic stability,” he said.
NAR estimates only 25 percent of newly eligible households would become homeowners, and does not capture the effect of increased trade-up buying activity. As such, these projections may understate the full impact of a home buyer tax credit.
Fed Official: Housing is Key to End Recession
While the current recession will be longer and more severe than predicted, housing will help lead the country out of the downturn, Boston Federal Reserve Bank President Eric Rosengren told the Massachusetts Mortgage Bankers Association at its annual meeting.
Rosengren said the housing market could stabilize this year, which he sees as a prerequisite for recovery.
“The recent reductions in mortgage rates, in part due to monetary policy actions, have enabled more borrowers than would otherwise have done so to purchase or refinance homes,” Rosengren said.
“Expansion of this effort and encouraging greater [Fannie Mae and Freddie Mac] participation, should encourage borrowers who have equity and reasonable credit scores to purchase or refinance homes,” he added.
Once the market stabilizes, mortgage securitization should be restructured to prevent future upheavals, Rosengren said.
Source: Reuters News, Kristina Cooke (01/08/09)
Top 10 U.S. Rental Markets
It will likely be a challenging year for all kinds of commercial real estate, according to the real estate services company and investment firm Grubb & Ellis Co., which released its 2009 forecast Monday.
Office space. The report found that 90 million square feet of office space was under construction at the end of 2008, most of which will be available for use in 2009. This new space combined with a projected 45 million square feet coming available as tenants vacate and a big jump in subleased space, will push vacancy rates up by 2 percentage points to end 2009 at 16.5 percent, the report predicted.
Retail. The retail real estate market will be hard hit by the downturn. Grocery store-anchored centers in mature trade areas will hold their ground in 2009, the report said, while centers on the urban fringe, where housing construction has stalled will suffer.
Industrial. The quest for cost-saving efficiencies should sustain demand for industrial space in 2009, despite the weak economy, according to the report. Nevertheless, the vacancy rate will rise slightly to end 2009 at 9.4 percent.
Apartments. Apartments will have a tough year, even with the addition of renters who have lost their homes to foreclosure, because of the increasing supply of unsold condos and homes now available for rental.
The top-10 rental housing markets from 2009-2013 will be:
- Los Angeles
- San Francisco
- Orange County, Calif.
- Oakland/East Bay, Calif.
- Washington, D.C.
- San Diego
- New York City
- San Jose, Calif.
- Long Island, N.Y.
- Portland, Ore.
Source: Grubb & Ellis (01/05/09)
Rising Property Taxes Really Hit a Nerve
Politicians all over the country are preparing legislation in response to angry homeowners who are demanding property tax rollbacks even as municipalities move to raise those same taxes.
State government in New York, Georgia, Oklahoma and Wyoming are about to consider proposals in their 2009 sessions to put the brakes on property tax increases.
Indiana already enacted a cap on property taxes and is considering a state constitutional amendment that would permanently cap property taxes at 1 percent of the property value.
Florida last year amended the state’s constitution to add property tax-related amendments. Citizens groups in Nevada and Arizona are working to get the same sort of measures on the ballot.
In New York, Gov. David Paterson is supporting a 4 percent statewide cap on property-tax increases.
“People are just astounded that this year, of all years,” the assessed value “of their property has increased,” said Georgia Rep. Larry O’Neal, a Republican and chair of the state’s House Ways and Means Committee.
Source: The Wall Street Journal, Jennifer Levitz (01/05/2009)
Home Buyer Tax Credit: How It Works
First-time homebuyers in 2008 can take an income-tax credit on their purchase, thanks to passage in Congress earlier this year of the first-time home buyer tax credit.
The definition of first-time homebuyer is generous. To get the credit, the homebuyer cannot have owned a home in the previous three years. The home must be a principal residence and purchased between April 9, 2008 and July 1, 2009.
The credit is equal to 10 percent of the purchase price, up to $7,500. Single taxpayers with modified adjusted gross income up to $75,000 and couples with MAGI up to $150,000 will qualify for full credit. Singles with MAGI up to $95,000 and couples with MAGI up to $170,000 will get a reduced amount. Those with higher incomes don’t qualify.
If the amount of tax a homebuyer owes is less than the amount of the credit, they get to keep the difference in the form of an IRS refund.
The homebuyer must begin to repay the credit in two years in increments of about $500 a year over a 15-year period for those who received the full credit
Homebuyers who sell their home before the credit is repaid must pay off the loan with any profits. If they sell the home at a loss, the loan is forgiven.
[Editor's Note: The credit is set to expire in mid-2009, although industry groups, including the NATIONAL ASSOCIATION OF REALTORS®, are encouraging Congress to extend it. NAR is also encouraging Congress to make the credit available to all buyers and to eliminate the repayment requirement. More detail on how the credit works is available from NAR on REALTOR.org.]
Source: Chicago Tribune, Mary Umberger (12/28/2008)
Housing in 2009: Up as Well as Down
Overall housing news in 2009 could continue to be grim if – as predicted – a flood of Alt-A and option adjustable-rate mortgages reset and push homeowners with previously strong financial situations into foreclosure.
“We’re in the middle of the game here,” said Joseph Seneca, professor of economics at Rutgers University in New Jersey. “There’s significant further unwinding to come. We’re in a downward spiral with job losses that is reinforcing the weakness in the consumer markets, particularly in the largest investment the consumer makes, in his home.”
Seneca says the government’s aggressive efforts to stabilize housing are helping, but housing won’t really recover until prices fall so far that large numbers of buyers jump back into the game.
In the meantime, the price of housing is increasing in some areas that are immune to the economic slowdown. These areas include the energy-producing states of North Dakota, South Dakota, Okalahoma, Alaska and Montana. Washington, D.C. with its host of government and defense jobs is doing well. Boston, San Diego and Orange County, Calif., where prices have dropped enough to increase affordability significantly, are also seeing price increases.
Source: Business Week, Prashant Gopal (12/24/2008)
Amid Rate Drops, Mortgage Applications Soar
With interest rates approaching reaching historic lows, the application volume for mortgages jumped a seasonally adjusted 48 percent last week compared with the previous week, according to the Mortgage Bankers Association’s weekly survey.
Application activity for the week ending December 19th was 124.6 percent over the same period a year ago, the Washington, D.C-based MBA said. The spike in applications coincided with another drop in mortgage rates, as the government’s efforts to unfreeze the residential-mortgage market show further signs of having the desired effect.
Applications to refinance existing mortgages increased 62.6 percent on a week-to-week basis, while applications filed for mortgages to buy homes increased a seasonally adjusted 10.6 percent. Refinancings made up 83.2 percent of all applications filed last week, up from 76.9 percent the previous week.
According to the MBA survey, interest rates fell across the board:
- Rates on 30-year fixed-rate mortgages averaged 5.04 percent last week, their lowest level in more than five years.
This was down from 5.18 percent the previous week.
- Fifteen-year fixed-rate mortgages averaged 4.91 percent, down from 4.93 percent the week before.
- One-year ARMs averaged 6.36 percent, down from 6.63 percent.
Source: Mortgage Bankers Association and MarketWatch (12/24/08)
Where Prices Have Increased the Most in 2008
U.S. Home values declined an average of 8.4 percent in the first three periods of 2008, down $2 trillion in total value, according to Zillow.com Real Estate Market Report, released this week.
Thirty of the 163 metropolitan statistical areas covered by Zillow, either showed gains in the median value of homes in the area or values stabilized.
Here are the 10 areas where values increased and declined the most.
Places Where Values Increased the Most
- Ithaca, N.Y., 5.6%
- State College, Pa., 4%
- Jacksonville, N.C., 3.9%
- Winston-Salem, N.C., 3.4%
- Bay City, Mi., 3.2%
- Rochester, N.Y. 3.1%
- Greenville, S. C., 2.8%
- Anderson, S.C. 2.7%
- Burlington, N.C., 2.6%
- Spartanburg, S.C., 2.0%
Places Where Values Decreased the Most
- Las Vegas-Paradise, Nev., -24.6%
- Bakersfield, Calif., -24.9%
- Madera, Calif., -26.2%
- Gainesville, Ga., -26.4%
- Riverside-San Bernardino-Ontario, Calif., -30.4%
- Modesto, Calif., -31%
- Salinas, Calif., -32.4%
- Merced, Calif., -32.5%
- Vallejo-Fairfield, Calif., -33.2%
- Stockton, Calif., -35.5%
Key Interest Rate as low as it can go
The Federal Reserve on Tuesday lowered its benchmark federal funds rate to a range or zero to 0.25 percent and said it would likely keep rates low for an extended period.
“The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Fed said.
The Fed also said it was prepared to purchase more debt issued or guaranteed by Fannie Mae, Freddie Mac and other government-sponsored mortgage agencies. And it said it is considering purchases of longer-term U.S. Treasury debt.
“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” it said.
Michael Woolfolk, senior currency strategist, at the Bank of New York-Mellon, applauded the Fed’s approach. “We think it’s the best possible move for the U.S.
consumer and for the financial market,” Woolfolk said.
Source: Reuters News, Mark Felsenthal (10/16/2008)
Business Picks Up Where Prices Have Tumbled
Sales are picking up in markets where prices are deflated, but the business is different than it was before the bubble burst, observers say.
The housing market in deflated markets–like Arizona, California, Florida, and Nebraska–are beginning to show signs of a rebound. Analysts say that prices have fallen to the point that those with average salaries can afford to buy once again.
“The buyers are returning,” says Lawrence Yun, National Association of Realtors chief economist. “And in such a strong way that, now, we are hearing in some cases there is multiple bidding, which hints that maybe pricing is reaching a bottom point. But inventory remains high.”
In California’s San Joaquin County, sales in September and October reached sales levels about equal to business at the height of the boom in 2005, says DataQuick, which provides property data.
But new buyers are primarily first-timers and investors looking to cash in. Local practitioners say the buyers are primarily local residents who have cash to spend.
“It’s the couple down the street that has a nice nest egg and who wants to put it into something that will give them a good return,” says Bev Marlow, head of the Central Valley Association of REALTORS®.
Source: The Christian Science Monitor, Ben Arnoldy (12/16/08)
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