Tax Credits to Expire June 30: Why So Early?

Under the newly revised terms for tax credit eligibility, a home buyer must enter into a binding sales contract by April 30, and close on the sale no later than June 30, 2010. These deadlines apply to both first-time and repeat buyers. Congress has made it clear these time limits will not again be extended.  Read more»

Why, you might ask, are the deadlines so early? Practically speaking, it means home buyers may be looking for a house while there’s still snow is on the ground. Well, that’s the idea! Concerned about cost, Congress is trying to gain some leverage. The plan is to spur early sales, in order to build momentum going into the spring market. Only time and home buyers will tell if that is a vain or inspired hope.

Meanwhile, home prices are beginning to inch up, not only in metro Boston, but in many other parts of the country as well, according to the closely watched S&P/Case-Shiller Home Price Index. Read more»

And the Fed is scheduled to end its program of buying Fannie and Freddie mortgage-backed securities on March 31, which will almost certainly usher in a new period of higher mortgage interest rates.  Read more»

So, the coming months present both a window of opportunity and a challenge for home buyers. Historically low interest rates, low home prices, and a tempting tax-credit must be weighed against a slowly improving, but still uncertain economy.

President Obama Signs Tax Credit Extension and Expansion

On November 6, President Obama signed H.R.3548: Worker, Homeownership, and Business Assistance Act of 2009. It extends and expands the homebuyer tax credit.  Here are the tax credit highlights:

For First-Time Buyers

• The Act extends the tax credit of 10%, up to a maximum of $8,000, for qualified first-time home buyers purchasing a principal residence. The tax credit now applies to sales occurring on or after January 1, 2009, and on or before June 30, 2010.  A binding sales contract must be signed no later than April 30, 2010.
• The income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009, are $75,000 for single taxpayers and $150,000 for married taxpayers filing joint returns.
• For sales occurring after November 6, 2009, the Act establishes income limits of $125,000 for single taxpayers and $225,000 for married couples filing joint returns. 
• Above these limits, there is a $20,000 phase-out range offering partial tax credits.
• The Act defines a first-time home buyer is as one who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
• The tax credit applies only to homes with a purchase price up to $800,000.

For Move-Up (Repeat) Buyers

• The Act establishes a tax credit of 10%, up to a maximum of $6,500, for qualified move-up buyers (existing home owners) purchasing a principal residence. The tax credit applies to sales occurring on or after November 6, 2009, and on or before June 30, 2010.  A binding sales contract must be signed no later than April 30, 2010.
• For move-up home buyers, the Act establishes income limits of $125,000 for single taxpayers and $225,000 for married couples filing joint returns.  Above these limits, there is a $20,000 phase-out range offering partial tax credits.
• The Act defines a move-up 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.
• The tax credit applies only to homes with a purchase price up to $800,000.

Everyone’s situation is different, so be sure to consult your tax preparer or financial adviser about how the various provisions of this Act may apply to you.

For further details, see the excellent FAQ pages by the National Association of Home Builders (NAHB).

August Home Prices Gain, Boston Among Leaders

Home price declines across the country continued to moderate in August, according to the latest release of the S&P/Case-Shiller Home Price Index. This marks seven months of improvments in these statistics, beginning in early 2009. (See Home Prices chart.)

“Broadly speaking, the rate of annual decline in home price values continues to improve” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.

Year-over-year, all 20 metro areas surveyed continued declining prices. But 19 of the 20 showed a slight increase in August over July. Many have had several such monthly gains. Boston has had a string of such gains, beginning in April, and once again was among only four with annual declines below 5%.

The home buyer tax credit extension and expansion could help sustain this positive trend. Weighing against it, course, are anticipated higher unemployment rates, and a possible increase in foreclosures.

From the peak in the second quarter of 2006 through August 2009, a composite index of the 20 metro areas surveyed had declined about 30%, returning to price levels not seen since autumn of 2003. By contrast, metro Boston had declined about 15% from its September 2005 peak, through August 2009, for an average annual loss rate of 3.6%.

The S&P/Case-Shiller Home Price Index records repeat sales of single-family homes, allowing it to avoid distortions due to changes in the sales mix over time. The Index has a two-month lag, that is, August is reported in October.

Standard & Poors’ Press Release    S&P/Case-Shiller Home Price Indices

Congress Votes to Extend FHA , Fannie Mae and Freddie Mac Loan Limits

Last week, the House and Senate passed legislation to extend the current loan limits for FHA, Freddie Mac and Fannie Mae through December 31, 2010. These loan limits, set at 125% of local area median home price and capped at $729,750, would have expired on December 31, 2009.  In that event, the limits would have been lowered in many markets. The extension is included in the Continuing Resolution to fund the government for the remainder of 2009.  The President was expected to sign it into law over the weekend.

Tax Credit Extension Is Expected, but It Will Be the Last

An extension and expansion of the home-buyer tax credit is now widely expected, but it should be the last, according to Senator Johnny Isakson, Republican of Georgia, the program’s chief proponent (photo). “This is the last extension,” he told reporters at the Capitol, according to Reuters.

Here are the highlights of the new proposal, as reported by the Wall Street Journal:

• $8,000 first-time buyer credit will be extended.
• New, $6,500 credit will be offered to home buyers who have lived in their current residence for a consecutive five-year period in the past eight years (to preclude investors).
• A purchase contract must be signed by April 30; the closing must take place by June 30.
• Income limits will be increased to $125,000 for singles and $250,000 for couples, from the current $75,000 and $150,000. The credit phases out for people making more than those amounts.

Senate leaders are still at odds over how the vote will be brought to the Senate floor. House Democrats and the White House reportedly are unhappy with the expansion provision due to concerns about the cost. There is broad support in both parties for an extension, but it is not yet a done deal.

$8000 Tax Credit Extension Hits Bump in Road

Widespread fraud has been found in the first-time homebuyer tax credit program, according to a newly released report by the Treasury Department’s inspector general.

As of September 30th, the report discloses, “the Internal Revenue Service had identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations,” The New York Times reports.

A hearing is underway on the report by the oversight subcommittee of the House Ways and Means Committee, under the chair of Rep. John Lewis, D GA (photo). A video of the hearing can be viewed on C-SPAN.

It is not clear whether the disturbing report will cool support in Congress for extending the tax credit, or strengthen those in the White House opposed to doing so on budgetary grounds.