Housing Complex

Second Chance for First-Time Buyers

Atul Garg

Tax Shelter: real estate agent Atul Garg can give you up to 8,000 reasons you should buy now.

Second Chance for First-Time Buyers: Want $8,000 back with the purchase of your first house? Pay attention!

Real estate agents across the country became temporary policy wonks last week.

But unlike other C-SPAN junkies, this group wasn’t fixated on whether the House of Representatives would scrounge up enough votes to pass health care reform. Instead, they were eyeing a provision in the U.S. tax code whose preservation they see as crucial to the battered housing market’s recovery.

The so-called “first-time homebuyer credit” is the real estate world’s “Cash for Clunkers”—a program that immediately recharged an industry, albeit while critics howled about its cost and said its impact would not last. According to many, the tax credit has energized middle- and low-income first-time buyers, giving them a financial incentive to start grabbing up some of the nation’s millions of foreclosed properties—otherwise sitting empty, losing value, and devaluing other homes.

The program, approved in February as part of President Obama’s stimulus bill, offered up to $8,000 to buyers. Originally set to expire Nov. 30—fueling a rush among would-be purchasers to find a house and settle, posthaste—the tax credit was extended by Congress, in modified form, last week. Buyers can now take advantage of it as long as they sign purchase contracts before April 30 and close by June 30 of next year.

“I ask people, ‘Do you know about the $8,000 tax credit?’ It surprises me that people don’t hear about it,” says Maceo Thomas, who works with Long & Foster on Capitol Hill. “A lot of people’s antennas just aren’t up for that,” he says.

In D.C., 1,329 people had filed for the credit as of Aug. 22, including those who took advantage of a $7,500 break passed in 2008, according to Jim Dupree, a spokesperson for the Internal Revenue Service. (In Maryland and Virginia, 23,679 and 40,527 people filed for it, respectively.) The actual numbers are likely much higher, as the figures do not include those who plan to file for the credit on their 2009 tax return but haven’t done so yet.

For those who didn’t take advantage of the credit on the first go-round, a few area real estate agents can explain what’s changed and how you can secure the break now:

• If at first you didn’t succeed—because you were too rich, boo-hoo—try again! The just-passed credit welcomes a whole new income bracket to the closing table. The old version shut out couples earning more than $150,000; individuals making above $75,000 couldn’t qualify for the full credit, either (there is a sliding scale). In the Washington area, plenty of people fell under this cap, including funeral directors (average annual income: $68,740), clergy ($45,750), social workers ($52,370), and high school teachers ($63,410), according to the Labor Department’s statistics. The new version is open to married couples making $225,000, collectively, and singles making $125,000, allowing financial managers (average annual salary: $119,740) and others to slide right in. It’s possible this new tax credit will have a greater effect on some of D.C.’s pricier, trendy neighborhoods, where well-to-do young people tend to buy their first homes. Since the first homebuyer credit passed, Thomas has worked with 11 first-time homebuyers, eight in D.C. The bulk of his clients are “nonprofit folks, government employees,” looking for houses priced at $250,000 and below. They purchased toward the back end of Capitol Hill by RFK, Fairlawn, the H Street area, Anacostia, and elsewhere east of the river. “High-end condos—I haven’t had any of those sales,” he says. On the other hand, agent Stanton Schnepp of Coldwell Banker Dupont works primarily with buyers looking at Logan Circle, Capitol Hill, and Dupont Circle. He didn’t see too many first-time homebuyers in the last few months—just two, he reports, and neither qualified for the tax credit: They earned too much. The new version of the credit won’t apply to million-dollar penthouses, however. It’s only applicable on properties costing up to $800,000 (the last version of the credit had no limitation.)

Don’t count on the full $8,000. “The danger in discussing this credit is [thinking], ‘Oh yeah, you’ll get $8,000.’ If you look closely, it’s up to $8,000,” says Atul Garg, a real estate agent from Coldwell Banker Dupont. He doesn’t play tax attorney when it comes to the homebuyer credit—if clients want to know exactly how much money they’re going to get, he tells them to talk to their lender. Scott Tucker, a senior loan officer with Coldwell Banker Residential Brokerage firm, says that, during the first round, an individual buyer’s credit was reduced $2,000 for every $5,000 over the tax credit salary limitations. With the initial tax credit, for example, people earning $75,000 or less could get the full $8,000 credit. Someone making $80,000 would get a $6,000 credit. For those not making a salary that ends neatly in a zero or a five, there is a formula, says Tucker: “Take the income, subtract eligible income, and then there’s a factor that you multiply it by and that’s what you get,” he says. Best to call your lender.

Three more tips, continued here!

This article will appear in this week's edition of the Washington City Paper.

CORRECTION: An earlier version of this column switched the first and last name of real estate agent Maceo Thomas.

Image by Darrow Montgomery

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  • http://www.carmenarruda.com Carmen Arruda

    Check out this story about the extension of the housing tax credit:

    http://abclocal.go.com/wabc/story?section=news/politics&id=7087955

    If you want to skip it, here's the interesting part (which they do not explain in detail):

    1,400,000 homebuyers have taken advantage of the tax credit.

    The story specifically states that NAR estimates that 350,000 of those wouldn't have purchased without the tax credit, meaning 1,050,000 would still have purchased without the tax credit.

    This means the total cost of the program breaks down like this:

    1,400,000 x 8,000 = $11,200,000,000 (11.2 BILLION)

    This means the total cost to give the 350,000 people who wouldn't have purchased a home without the tax credit was the 11.2 Billion; which means:

    11,200,000,000 / 350,000 = $32,000 per transaction

    So:

    It cost $32,000 for each individual who got the $8,000 tax credit, to motivate them to purchase a new home.

    Wow.

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  • http://www.titlebycarmen.com Carmen Arruda

    Carmen Arruda’s thoughts on foreclosures and the current real estate market:
    The number of people interested in investing in real estate has doubled since March as more folks are lured by low prices and the wide selection of foreclosures that can be bought on the cheap, according to survey results released this week by Move.com.
    Just more than 12% of potential home buyers surveyed plan to purchase a home as an investment property compared with less than 6% who said the same seven months ago, the survey found. Of those interested in buying a foreclosure, 42% were investors. About 13% of those investors would turn their foreclosures into rentals, 11% would fix them up for resale and 17% said the houses would be used by a family member until the home could be sold for a profit, according to the survey.
    Of all potential buyers interested in purchasing a home -- both for investment and to live in -- 25% said they want to buy a foreclosure.
    They also plan on buying low and watching their purchase pay off in the next several years. Of the potential buyers polled, 58% said they expect to pay at least 20% less than market price for a foreclosure, and 39% said they expected a 25% or greater discount. Seventy-three percent expect their properties to appreciate 10% or more in five years; 28% expect their purchases to appreciate 20% or more during the same time.
    The most popular reasons given for taking action now: concern that prices have hit a bottom and a desire to take advantage of bargains, according to the results.
    About 1,000 people participated in the survey.
    "This latest survey validates what many had hoped to see in the housing markets -- affordable prices and ample inventories are restoring the appeal of real estate to investors while providing opportunities for first-time home buyers to enter the market,"
    "In today's environment, regardless of whether you're an investor or interested in purchasing a home to live in yourself, residential real estate is a more attractive investment today for many than it has been in recent years."
    Members of the National Association of Realtors will likely be expressing similar sentiments when they meet this weekend for their annual conference.
    With the first-time home-buyer tax credit extended last week -- and expanded to benefit certain move-up buyers too -- this could be an unusually busy winter for home sales. Throw increased investor interest in the mix, and its possible Realtors could have the happiest holidays they've had in a while.
    Buying forelcosures:
    Buying foreclosures can be extremely profitable for real estate investors. It means that you need to be aware of local laws and how they may affect the ownership of a property. Buying below market value with no money down is easy, you just need to know how to do it. You can usually purchase a foreclosure for no more than 75% of retail price.

    Homeowners usually face foreclosure on their properties for failing to pay their mortgage payments.Because the homeowner has been delinquent their mortgage, they are now in a position to entertain offers by investors. Depending on your state, the lender will issue this notice when the homeowner has been 3 months delinquent on the mortgage payments. In order to buy during this period, you first have to make a deal with the homeowner. Buying a pre-foreclosure means dealing and working out an agreement with a homeowner, attempting to buy the property from them before it has been foreclosed on.

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  • http://www.titlebycarmen.com Carmen Arruda

    For the fourth consecutive month, housing prices fell slightly, dipping 0.4% from December on a non-seasonally adjusted basis, according to the Standard & Poor's/Case-Shiller home price index, which tracks 20 large cities. Values dropped in 18 of 20 metro areas, with only Los Angeles and San Diego posting modest gains.

    From May to September, home prices rose 5.3% on the stock market rally and pent-up demand. But the run-up stalled as a first-time home buyers' tax credit expired in November and foreclosures bloated housing stocks.

    "I think we've moved from a rebound phase to a if-we-hang-on-everything-will-get-to-where-we-belong phase," says David Blitzer, who oversees the survey for Standard & Poor's.

    The good news: The stomach-churning real estate crash seems to be history, and the market has stabilized. Prices are down only about 1% since September and 0.7% vs. January 2009, the best year-over-year showing since January 2007. Yet values are still nearly 30% below their summer 2006 peak. Prices in Charlotte, Las Vegas, Seattle and Tampa notched new lows in January.

    Seasonally adjusted prices rose 0.3%, the eighth straight increase, though they, too, have been basically treading water since fall.

    Big backlogs are preventing a more robust upturn. There was an 8.6-month supply of existing homes in February, up from 7.8 months in January, according to the National Association of Realtors. That's lower than the 11-month buildup during the nadir of the real estate downturn in July 2008, but a healthy supply is six months.

    Most of the foreclosures are hitting the market in the first quarter, economist Patrick Newport of IHS Global Insight says. They'll be partly offset by a second home buyers' tax credit that should modestly goose spring sales, he says. Buyers must sign a contract by April 30 and close by June 30. Still, he says, its expiration, combined with the foreclosures, should push down prices 5% by year's end.

    Joel Naroff of Naroff Economic Advisors is a bit more sanguine. He says the tax credit, and the improving economy and job market, should result in a 1% to 3% increase in home prices this year.

    Meanwhile, a closely watched index of consumer confidence beat expectations, jumping to 52.5 in March after falling sharply to 46.4 in February on concerns over nearly 10% unemployment, The Conference Board said. The portion of consumers saying jobs are hard to get fell to 45.8% from 47.3%, while those who say jobs are plentiful rose to 4.4% from 4%. The overall index is up from its low of 25.3 in February 2009 but well below normal.
    Carmen Arruda, Fidelity National Title

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