First Time Home Buyer Tax Credit

Refundable First-time Home Buyer Credit.

Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return).

The bill eliminates the repayment obligation for taxpayers that purchase homes after January 1, 2009, increases the maximum value of the credit to $8,000, and removes the prohibition on financing by mortgage revenue bonds, and extends the availability of the credit for homes purchased before December 1, 2009. The provision would retain the credit recapture if the house is sold within three years of purchase. This proposal is estimated to cost $6.638 billion over 10 years.

Prices Still Fall But Sales Are Up!

Once again the real estate market is continuing its decline, but the positive news is the quantity of home sales is continuing its increase, mostly as a result of the high inventory of foreclosures. Foreclosures accounted for over 50% of December 2008’s home resales activity [up from 24.3% in Dec. 2007]. The most activity is occurring in the inland markets like Riverside, Temecula and the South Bay like Chula Vista and Imperial Beach. These were the first areas to dramatically drop over a year ago with countless short sales and foreclosures. Now with prices so low buyers are taking advantage of the great buys and sales are skyrocketing.

Aside from the sales in the aforementioned markets, what does this mean for the costal/metro areas of San Diego? A year ago we were happy to see a few short sales and foreclosures here in Point Loma [Ocean Beach, Pacific Beach, Del Mar, etc.] but now things have changed, mostly in the condo market. This may mean bad news for property values, BUT it is great for investors and first time buyers. We are seeing condos under $200k in the beach areas; one couldn’t find these just one year ago. Most of these properties are actually in decent to good condition [a rare find a year ago for any short sales and foreclosures] and many are selling QUICKLY. This is the silver lining on our economic dark cloud.

Does this forecast change in 2009? Despite everyone having some outlook for this year, positive or mostly negative, I am convinced we really won’t know until it happens. The good news is the well-priced homes are selling immediately, and more sales are being made consecutively month after month. So it is definitely a great time to buy!

One of the biggest deterrents I am seeing with buyers is their concern that prices will continue their decline. Could this happen? Yes, but nobody can pick the exact time the market hits bottom & eventually [within a few years] everything will be worth more anyway. So, as I always say, don’t buy unless you can keep it for at least 3-5 years. Prices may still go down, but they will go up! Remember, too, when you OWN and pay a mortgage, the interest is tax deductible as well as the property taxes...If you RENT the rent is not tax deductible...it's just money thrown away.

More good news, interest rates are down, but lenders are being very conservative in lending jumbo loans [loans over $417k]. For example, in early 2007 jumbo loans accounted for nearly 40% of all home loans and in December 2008 only 12%. Loans are one of the big concerns with condo sales. Lenders want a minimum of 60% owner occupancy for best loans. Many of the foreclosures and short sales are of owner-occupied units being bought by investors now, so more and more non-owner occupied units are what is selling.