2010 National Real Estate Housing Outlook

Call Delicious Real Estate (614-358-5515) to discuss your 2010 home purchase.

A quick review of National Association of Realtors’ Chief Economist Lawrence Yun’s 2010 preview looks positive. I would caution it as maybe even being a little optimistic and would suggest a 12-15% uptick over 2009 first quarter sales here in Central Ohio. I think over the Holidays a lot of Columbus singles, couples and families will have long discussions about home buying and hit the new year resolved to buy a home in 2010. I think once the tax credits expire and interest rates start to creep up, the second half of 2010 will be slow here in and around Columbus.

As for the rest of the country, this is what Yun has to say….In all, 4.4 million Americans look to take advantage of the home buyer tax credit before it expires by the middle of next year. From the enactment in February of this year through October, NAR estimates 1.8 million households would have qualified to claim the first-time home buyer tax credit. Now with the tax credit deadline extended till the end of June 2010 (for closings, with contracts signed by the end of April, 2010) and also available to many move-up buyers, an additional 2.6 million families would likely claim the home buyer tax credit.

The expected boost to existing home sales by more than 20 percent in the first half of 2010 from comparable period one year before will sufficiently trim away inventory such that home values will begin to show increases by the middle of next year in many parts of the country. The median existing home price could rise by 2 to 4 percent in 2010. New home sales could jump by nearly 50 percent, though from very depressed levels to figures that would be less than half the pace as during the peak sales year in 2005.

One assumption underlying the home sales forecast is that the mortgage rates will continue to remain at near historically low around 5 percent and not more than 5.5 percent. Meanwhile, the unemployment rate is projected to stay high at slightly above 10 percent through the first half of next year, before steadily inching down. Another assumption is that the economy as measured by the GDP continues to expand at nearly 3 percent, thereby laying the foundation for eventual consistent net job gains sometime in the spring of next year.

There was indeed good news on the job front. In November, payroll jobs were reduced by only 11,000. Of course, job cuts are bad, but the momentum of fewer layoffs with each passing month is clearly positive news. Consider this: job cuts averaged 688,000 per month in the first quarter, 512,000 per month in the second quarter, 288,000 per month in the third quarter, and 111,000 in October. In the construction sector, the job loss in November was 27,000, but the pace of cuts has also been diminishing.

The average hours worked by an employee rose in November as well, implying more full-time hours over part-time. Moreover, employment information from households and not from established companies suggests a net job addition. A total of 227,000 jobs were added when based on household survey, thereby nudging the unemployment rate lower to 10.0 percent in November from 10.2 percent in the prior month. Usually, many start-up companies and consultancy jobs are not counted in the company survey data, which explains for the differences between household and company surveys on jobs. So as long as the job momentum moves for the better, the housing market forecast of 20 percent higher sales and stabilizing home values should hold up. An improving housing market and the very important development of home values and housing wealth stabilization will in turn better stimulate economic recovery.

Not all markets are equal, however. Detroit is hemorrhaging with 17 percent unemployment rate. The Washington D.C. area is buffered from so much government spending with the jobless rate at only 6 percent. Even if a bridge is built in Alaska, somehow jobs get created in D.C. Something right is being done in North Dakota with labor shortages and a state budget surplus. Bismark and Fargo have exceptionally low unemployment rates of only 3 percent.

On interest rates, the borrowing rate for a home purchase and refinance on a primary home has never been lower than it is now. The average rate on a 30-year fixed rate mortgage was 4.8 percent in early December. The rates will not move lower than this in 2010. All indications in fact point toward higher rates next year. The Federal Reserve could end the purchase of mortgage-backed securities (MBS) in March as currently scheduled, though my guess is that MBS purchases will continue for a bit further, though less aggressively. Even in the absence of the Fed’s MBS purchase, mortgage rates will not suddenly rise to alarming levels. At most, mortgage rates will rise to the high fives (5.6 to 5.8 percent). Given global financial market inter-linkages, we need to be mindful that the Australian central bank has already begun to raise its rates and Canada is looking to do the same very soon. The European central bank, though not planning on raising interest rates anytime soon, indicated it is looking to stop its quantitative easing policy and possibly move in reverse very soon. That means that, rather than the central bank buying government and private market bonds out of newly printed money, it plans to mop up excessive cash floating in the system to assure inflation does not suddenly pop out of the bottle. With these developments, the U.S. Federal Reserve will surely have to raise its fed funds rate sometime in the second half of 2010 and stop the purchase of private bonds, including MBSs. Otherwise, the dollar will lose its ground to other currencies and steadily cut into our standard of living here at home.

The very high federal budget deficits could also do us in. After an all-time high of $1.4 trillion in budget deficit in the fiscal year 2009, another trillion dollar deficit is on the card for 2010 and near trillion in 2011 and 2012. A big factor in lessening the deficit is how the economy grows. If the economy expands and leads to robust job creation, then the deficit will be lower than projected. If the economy hits many speed bumps along the way then the deficit will get quite ugly. Therefore, a way to get out of the deficit jam is to promote policies leading to economic growth. But unfortunately, the high deficit could also put focus on ways to raise more tax revenue by chipping away at mortgage interest deduction, property tax deduction, and capital gains tax exclusion on primary residence. This discussion could come alive in 2010 and if it does surface NAR will vigorously defend homeownership policies that have been the very foundation of stable middle-class based democracy, civic participation, and long-term middle class wealth accumulation. Any housing policy leading to unsuccessful homeownership (such as the ones associated with the recent housing bust and foreclosures) should be dropped. But policies that promote responsible and sustainable homeownership have incalculable societal benefits and must be defended. In addition, given that homeowners already pay nearly 90 percent of all federal income taxes, trying to extract more out of homeowners will in the end be counter-productive economically and politically.

1st Time Columbus Real Estate Home Buyers Flock to beat deadline

'Tis the Season to Purchase your Next Home

The original 1st time home buyer tax credit was set to expire on November 30, 2009.  During the week of November 23-30, 2009, 1st time home buyers in Columbus and surrounding communities racked up 577 Central Ohio Homes Sales.  That’s up 41% from same week last year.

Was the original 1st time home buyer tax credit a resounding success in terms of getting buyers into homes? I think that 41% increase says yes. You’d have to look beyond the face of it though. How many of those buyers would have bought a home anyway?

Interest rates these last two quarters have been hovering around historic lows–that should be enough of an incentive to get most buyers off the fence. Most of the first time buyers I worked with this year would have bought anyway and were maybe just a little more motivated by the tax credit which was seen as icing on the cake of homeownership.

Also, how many of those Columbus area homes purchased by 1st time buyers were Columbus short sales or Columbus foreclosures? I don’t think Central Ohio has seen the anticipated cause and effect relationship  the tax credit was supposed to begin–namely, noticeable increases in 2nd time buyers moving up into more expensive homes and so on. The tax credit buyers were supposed to start a domino effect of trickle-up housing economics and while there did seem to be a plethora of first time buyers out there in Columbus, higher end housing-let’s say $400,000 and up-hasn’t felt the anticipated repercussions of that boon.

Everything you wanted to know about claiming the $6,500 move-up or repeat home buyer tax credit

Frequently Asked Questions About the Move-Up/Repeat Home Buyer Tax Credit – via the National Association of Home Builders

The Worker, Homeownership, and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).

The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1. Who is eligible to claim the $6,500 tax credit?
   Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.
2. What is the definition of a move-up or repeat home buyer?
   The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a home owner who has owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.
3. How is the amount of the tax credit determined?
   The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.
4. Are there any income limits for claiming the tax credit?
   Yes. The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
5. What is “modified adjusted gross income”?
   Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

   To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.

6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
   Possibly. It depends on your income. Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phaseout limits.
7. Can you give me an example of how the partial tax credit is determined?
   Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5. The result is $3,250.

   Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $6,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,275.

   Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? How is this different than the rules established in early 2009?
   The previous tax credits applied only to first-time home buyers and were for different amounts of money.
9. How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?
   You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).

   No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and repeat home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.

10. What types of homes will qualify for the tax credit?
    Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

    It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.

11. I read that the tax credit is “refundable.” What does that mean?
    The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

    For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).

12. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
    Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).

    In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. Be sure to check with a tax advisor in cases where a HUD-1 form is not used at settlement to be sure you have sufficient documentation to attach to IRS Form 5405.

13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
    Yes. The tax credit can be combined with an MRB home buyer program.
14. I am not a U.S. citizen. Can I claim the tax credit?
    Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of “nonresident alien” in IRS Publication 519.
15. Is a tax credit the same as a tax deduction?
    No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives an $6,500 tax credit would owe nothing to the IRS.

    A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer’s tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.

16. Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?
    Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

    Buyers should adjust the withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

    In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.

17. HUD allows “monetization” of the tax credit. What does that mean?
    It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.

    Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.

    Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.

    In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.

    More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site.

18. If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?
    Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

    Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

19. For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest?
    Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

Schumacher Place and Merion Village Real Estate Update

This 2 bed, 1 bath 1076 sf Hanford St. Condo sold last week for $172,000

This update includes some of the near South – specifically Schumacher Place and Merion Village

Homes on the market: 97 Greater Schumacher Place and Merion Village Homes and Condos for sale today

• $177,474
• 1424 sf
• $126/sf and
• 140 days on market

Greater Schumacher Place and Merion Village Homes in contract with escape clauses:

None, There are no homes you could still, conceivably, swoop in and buy

Schumacher Place and Merion Village Homes in Contract contingent on financing/inspections as of today: 13

• Averaging 1404 sf
• $163,377
• $121/sf
• 149 days on market

Schumacher Place and Merion Village area Homes in firm contract as of today: 1

But it’s irrelevant to this discussion

Greater Schumacher Place and Merion Village area Homes SOLD over the last 90 days: 26

• Averaging 1299 sf
• $155,460 avg List but a $148,327  Sale price or 94%
• $116/sf
• 94 days on market

Joe Peffer is a Realtor who works in Schumacher Place, Merion Village and other Columbus Neighborhoods.

Would you like me to break it down by Schumacher Place vs Merion Village or $/sf for Schumacher place condos? email me and I will be glad to help any way I can

German Village and Brewery District Real Estate Update

This 3 bed, 2.5 bath 2150 sf German Village home sold a few days ago for $430,000 after 146 days

This update includes some of the near South including the Brewery District and GermanVillage

Homes on the market: 181 Greater German Village Homes and Condos for sale today

• $299,967
• $204/sf and
• 234 days on market.
• CONDOS ONLY – 47 Listings, $310,628 1692 sf, $186/sf, 163 DOM
• HOMES ONLY – 91 Listings, $476,969 – 1989 sf – $228 sf – 174 DOM

Greater German Village Homes in contract with escape clauses:

There is One Home you could still, conceivably, swoop in and buy — 193 East Beck is listed at $279,900 and is a 2 bed, 2 bath with 1085 sf.

Greater German Village Homes in Contract contingent on financing/inspections as of today: 7

• Averaging 1606 sf
• $288,700
• $182/sf
• 139 days on market
• CONDOS ONLY – 2 w/ avg of $175,900, 1442 sf, $151/sf, 101 DOM
• HOMES ONLY – 5 with an avg of $333,820 – 1666 sf – $195/sf – 154 DOM

Greater German Village area Homes in firm contract as of today: 2

• Averaging 1934 sf
• $178,650
• $98/sf
• 51 days on market

Greater German Village area Homes SOLD over the last 90 days: 26

• Averaging 1336 sf
• $251,245 avg List but a $235,377  Sale price or 94%
• $176/sf
• 148 days on market
• CONDOS ONLY – 4 @$152,975, 1065 sf, $145/sf, 79 DOM 2 in GV and 2 in SP
• HOMES ONLY – 22 @ $250,359, 1388 sf – $182/sf – 160 DOM

Joe Peffer is a Realtor who works in German Village, Schumacher Place, the Brewery District, Merion Village and other Columbus Neighborhoods.

Would you like me to break it down by German Village vs Brewery District or just condos, Schumacher Place vs Merion Village? email me and I will be glad to help any way I can