home buyer tax credit Archives - Real Estate News and Commentary

June 29, 2010October 5, 2019

Employment is the key to a stable housing market

by Dan Krell © 2010

The one question that everyone is asking, “where is the housing market headed?” A new focus is needed to stabilize the housing market as the national home buyer tax credit expires (state home buyer tax credit programs, such as California, may continue through the end of the year), and criticism for government foreclosure relief programs increases.

As the national home buyer tax credit sunsets, some in the industry (such as the National Association of Realtors) are scrambling to get a further extension. Proponents of the tax credit point to home sales spikes through the year as evidence of the tax credit’s efficacy. A June 25th NAR press release (realtor.org), described efforts to extend the closing deadline to assist those who could not close by the June 30th target. An amendment to extend the deadline was inserted into H.R. 4213: “American Workers, State, and Business Relief Act of 2010,” which passed both the House and Senate, but still needs to go to conference prior to becoming law.

Doubt remains over the efficacy of the home buyer tax credit; many critics applaud its none too soon conclusion. Putting aside the reports of fraud and abuse by those who have undeservedly filed for the credit, Fannie Mae’s March revised 2010 housing outlook (Economic and Mortgage Market Analysis; March 17, 2010) expressed doubts over continued effectiveness. The report cited various reasons that the most recent tax credit would not be as successful as prior tax credits. June’s Economic and Mortgage Market Analysis (FannieMae.com) reported that the most recent tax credit in fact only temporarily boosted home sales in April. April’s increased sales may have been due to many home buyers seeking to meet the initial qualifier for tax credit (which was to have a contract on a principle residence).

In addition to increasing home sales is the attempt to keep distressed home owners in their homes. Reports criticizing government mortgage modification and relief programs citing a lack luster performance seem to be appearing with increased frequency. Take for example the an April 20th Bloomberg story citing the Special Inspector General for the Troubled Asset Relief Program, Neil Barofsky (“U.S. Treasury’s Housing Program Fails to Stem Foreclosures, Watchdog Says”). Mr. Barofsky criticized HAMP (Home Affordable Modification Program) saying it has made very little progress. Additionally, it is estimated that 40% of those helped will eventually default; which could stem from HAMP’s high median debt to income ratios of 61.3% after lowered mortgage payments (FHA guidelines allow for a maximum overall debt to income ratio of 41%).

Since the fourth quarter of 2008, housing indicators have been inconsistent (much like other economic indicators). Even though doubt exists about tax credit and foreclosure relief effectiveness others argue the future of housing may lie with employment and personal earnings.

A recent Florida Realors® study (“The Face of Foreclosure”; floridarealtors.org) points out the correlation between unemployment and foreclosure. The April 6th 2010 press release quoted, Florida Realtors® vice president of public policy, John Sebree, as saying “…In most cases, it was a combination of rising living costs, unemployment or decreased pay, health issues and other factors that caused homeowners to get into trouble. Simple answers and trite political responses just don’t tell the whole story.”

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of June 28, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

March 26, 2010June 28, 2019

The next round of homebuyer tax credits may be a local incentive

As the home buyer tax credit is set to expire very soon, many are wondering if the credit will be extended again. Earlier in the year, proponents have pointed to increased home sales as a direct result of the home buyer tax credit. However, a a Wall Street Journal article (blogs.wsj.com/developments/2010/03/18/has-the-home-buyer-tax-credit-extension-flopped) points to a recently revised Fannie Mae 2010 housing forecast that indicates the current home buyer tax credit has not been as effective as the credit in 2009.

Fannie Mae’s “March Economic Developments” states:

“There are many reasons why we believe the second tax credit will be much less effective than the first. The 2009 first-time homebuyer tax credit may have dried up the pool of qualified first-time homebuyers. In addition, while the tax credit was extended to cover repeat buyers, the amount of the credit was smaller than that for first-time homebuyers. The tax incentives may not be enough to induce many homeowners to move, given that current homeowners generally must incur commission costs to sell their current homes, a cost not incurred by first-time homebuyers.”

Although there is doubt over the federal home buyer tax credit, states like California that have been hit hard by foreclosures are offering home buyer incentives. Yesterday, Governor Schwarzenegger signed into law yesterday the extension and expansion of the California home buyer tax credit, commenting that the credit is expected to stimulate the economy and put many of the vacant homes back “on the tax role.” Now California home buyers can take advantage of a California tax credit of $10,000 for the purchase of a new home or their first home until December 31, 2010.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

November 10, 2009October 5, 2019

A two pronged stopgap for real estate

Last week was indeed historic for events in Washington, DC. However, two important developments that directly affect real estate should be highlighted. You may have already heard that the home buyer tax credit was extended and expanded. However, you may not have heard that Fannie Mae announced another program to assist home owners facing foreclosure.

On Friday November 6th, the President signed HR 3548 into law which extends the home buyer tax credit through next year; home buyers must have a ratified contract for a principle residence (up to a purchase price of $800,000) by April 30th 2010 and close by June 30th 2010. A tax credit up to $8,000 will continue for first time home buyers who purchase their home before the sunset date; other home buyers who purchase their home before the deadline may be eligible to receive a tax credit up to $6,500. Home buyer income limits have also been increased to $125,000 for individuals and $225,000 for those filing joint returns (prorated amounts may be available for those who earn more than the stated limits). For additional qualifying information, please refer to the guidelines posted by the IRS (www.irs.gov/newsroom/article/0,,id=206293,00.html).

Additional good news came last week from the mortgage giant Fannie Mae, which issued a press release announcing the “Deed for lease” program. The “Deed for Lease” program is designed to assist struggling home owners to stay in their homes by allowing them to pay “market” rent. The program requires home owners facing foreclosure to give the home to their lender via a “deed in lieu of foreclosure” (also known as a friendly foreclosure).

The rental period for the “Deed for lease” program may be up to twelve months. The program may also be available for investment properties that are currently occupied by tenants. A rental application fee of $75 per unit is required. If the home is occupied by tenants who want to stay in the home, those tenants must cooperate with the property manager through the process. Any disruption of the process may result in disqualification from the program. Once initiated, the home owner may not be eligible for the ”Cash for Keys” program (a relocation assistance program for those who are forced to leave their homes). Eligibility requirements and further assistance can be obtained from your Fannie Mae servicer (www.efanniemae.com/sf/servicing/d4l/).

This two prong approach may stem further eroding residential real estate values, which may be due to foreclosures, by increasing demand while reducing inventory. Providing incentives to all home buyers will add additional home buying activity, while allowing home owners facing foreclosure stay in their homes may decrease the negative events associated with foreclosure, such as: lowering the number of displaced home owners who are forced to move, reducing the number of vacant homes; and decreasing the inventory of distressed properties that have the potential to lower neighborhood values.

Alone, programs such as these have drawn criticism pointing out statistics indicating that the money is wasted. However, increasing demand through incentives, while decreasing distressed property inventory may be the combination needed to hold off further eroding home values while strengthening the overall economy. Time will tell if the one-two punch is successful and if there is a need for further expansion of one or both of sides of the equation.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 9, 2009. Copyright © 2009 Dan Krell

November 5, 2009July 18, 2019

Senate passes home buyer tax credit legislation

Yesterday (November 4th), the Senate passed legislation to extend and expand the home buyer tax credit. The $8,000 first time home buyer tax credit continues; AND adding a “move up” buyer tax credit of $6,500 (both to sunset April 30, 2010). The new legislation is certainly going to continue helping first time home buyers, as well as helping many move up home buyers who are struggling with their own liquidity.

Surely, many home buyers will take advantage of the tax credit to assist them in their purchases. Although there is a direct and immediate effect of the home buyer credit, many continue to debate its affects. Many have voiced their opinion about the pros and cons.

By Dan Krell
Copyright © 2009

November 2, 2009October 5, 2019

Will home buyer tax credit replace mortgage interest deduction?

Tax credit or deduction?

The mortgage interest tax deduction (MID) has been around for a long time. In fact, the MID (along with other interest tax deductions) was allowed since 1913. Throughout its history there have been many considerations to increase tax revenue by reducing, eliminating or phasing out the MID. In recent years, the Bush administration considered alternatives to the MID, and now the Obama administration is considering the options on the disposition of the MID.

In its August 2009 report to the House and Senate Committees on the Budget (Budget Options, Volume 2), the Congressional Budget Office (CBO) presented suggested options to assist policy makers in the budget process. Included in the report was their proposal for the MID. Much like the previous’ administration’s considered changes to the MID, the CBO’s report discussed either reducing the MID beginning in 2013 (as the CBO report states, “when the housing markets are expected to have recovered from their current turmoil”), or converting the MID to a home buyer tax credit (CBO.gov).

Proposed changes to the MID have typically been met with strong opposition by housing proponents, such as the National Association of Realtors and the National Association of Home Builders. During the Bush Administration’s contemplation of reducing the MID, then NAR President, Al Mansell, sent a letter to the President’s Advisory Panel on Tax Reform stating reasons for not changing the MID. Mansell’s letter makes many points in favor of the MID, among them include that the tax system supports homeownership and makes homeownership affordable. Additionally, the removal of the MID may cause a deflationary spiral of home prices (keep in mind this letter was dated October 14, 2005).

MID opposition include many economists who challenge the need for continuing the MID with arguments that the MID does not promote home ownership (and may in fact contribute to the inflation of “affordable” housing), and (contrary to claims that it helps lower to middle income home owners) a disproportionately larger number of home owners who claim the MID are in the upper income brackets.

Studies that present housing data indicate that the MID has little to no effect on home ownership. One such study, a 2007 report by the California Legislative Analyst Office (www.lao.ca.gov), indicated that home ownership rates were higher than the national average in the eight states that do not allow for a state MID. Additionally, the report cited other studies that showed there was no clear relationship between the MID and national homeownership rates as their variances over a forty year period were not congruent.

The California Legislative Analyst Office study also reported income data that corroborated a 2006 study by the Tax Foundation (taxfoundation.org) that a higher proportion of home owners who use the MID are in the upper income brackets. The Tax Foundation study analyzed 2003 IRS data that indicated that a significantly higher percentage of home owners (nationwide) who claimed the MID had an adjusted gross income of $75,000 or more.

Proposed changes to the MID are always controversial, but the timing may right for such a change. The ultimate demise of the MID may come from an unlikely source gaining additional support to boost the housing market- the first time home buyer tax credit.