The Home Buyer Tax Credit is no longer front page news but that doesn’t mean it should be forgotten. Under the current rules, enacted in November, a first-time buyer or qualifying repeat buyer, must be in contract by April 30 and close on the property before July 1. The income limits changed from the original version, a cap was placed on the the property price (not loan amount) for the $6500 credit, and someone that is claimed as a dependent can not claim the Credit. As always, if you have tax related questions, contact a CPA.

How does the Credit affect Portland real estate? In my opinion, not much. Yes, it has been a contributing factor but I don’t think it has been the savior that some cite and I don’t think the market is going to crash and burn when the Credit ends. The Credit is significant for those that qualify or decide to purchase because of it but it is not significant to the long term. NAR cited roughly 350,000 houses sold last year because of the Credit (that’s not the number of people that qualified but the number that would not have purchased had the Credit not existed). There are roughly 1 million licensed Realtors. Do the math.

If I was a buyer or seller? The Credit is a bonus. If I was planning on doing something in the first half of the year, I would do it now to take advantage of what is essentially free money. “I’m selling, it doesn’t do me any good.” Sure it does. Your house is $8000 more attractive on April 30th than it is on May 1 to certain segment of the market. If you qualify for the $6500 there is potentially $14,500 worth of Credit in the two transactions.

If I thought the market was going to drop 3% I’d be better off waiting if I was looking at roughly the average home (3% of a $300,000 house is $9,000). Some may consider the Credit as an “insurance policy” against a possible slide? The Credit is cash in your hand (once you file) versus theoretical paper money. Ultimately you have look at your situation, talk to advisers and go from there.

It’s no longer the $8000 First Time Homebuyer Credit.  It’s now the $8000 First Time Homebuyer Credit or $6500 if You Have Lived in Your Home for Five of The Last Eight Years and Buy a New Home Credit (if you qualify).  The Senate voted last night and the House voted today (403-12) on H.R.3548 so the bill moves to President Obama for his signature; possibly tomorrow.  Sections 11 and 12 of the bill specifically deal with The Credit.

The revised credit will take effect on December 1st and is not retroactive.  Changes include raising the maximum income for qualified couples to $225,000.  The $6500 credit is only valid for primary residences.

UPI.com has a good article here, Examiner.com here, and subprime blogger here regarding the passage of the revised credit and additional information.

On October 22, the Treasury Inspector General for Tax Administration released a report that includes:

As a result of the IRS’s inaction, TIGTA’s report found that 19,351 taxpayers claimed $139.4 million in credits for homes they had not yet purchased but would allegedly purchase in the future. In addition, 70,005 taxpayers claimed more than $479 million in credits, despite indications that they were not first-time homebuyers. TIGTA also identified 582 taxpayers under 18 years of age who claimed almost $4 million in First-Time Homebuyer Credits. The youngest taxpayers receiving the Credit were 4 years old. (emphasis added)

The new law makes provisions to go after those fraudulently claiming the credit.

According to Real Estate Economy Watch, the first time homebuyer credit extension is close to a done deal.

After two weeks of delay, the Senate last night cleared the way to pass a seven month extension and expansion of the tax credit for homebuyers.  By an 85 to 2 roll call vote, the Senate voted to cut off debate on a package of measures that includes the homebuyer credit, making it virtually certain that the legislation will reach President Obama for his signature this week.

As a Realtor, it’s good news for our industry but I don’t think that it would have been the end of the world, or will be in April, when the tax credit expires.  It will be interesting to see how many people are able to take advantage  of the $6500 credit for existing homeowners.  I haven’t found the exact text of what the senate is going to vote on but heard today that the requirement is that it has been your home for five of the last eight years.

Just reported on MSNBC “Senators agree to extend homebuyer tax credit”

Senators agreed to extend the existing tax credit for first-time homebuyers while offering a reduced credit of up to $6,500 to repeat buyers who have owned their current homes for at least five years, said Regan Lachapelle, a spokeswoman for Senate Majority Leader Harry Reid, D-Nev.

The bill, in which the Credit is a part of, could come up to vote as soon as Thursday.

Time is running out for the First Time Buyer Credit but Congress seems to be moving towards an extension. The possibility of writing an offer and closing on a short sale property before the deadline passed weeks ago.  The comfort zone for closing a “regular” sale has passed and gotten to the risk of not closing by December 1.  Not impossible, still doable but don’t cash that check ’til you qualify.

Bloomberg.com reports today:

Oct. 26 (Bloomberg) — Senate leaders are negotiating to extend and gradually reduce an $8,000 tax credit for first-time homebuyers through 2010, Senator Bill Nelson of Florida said.

“We should be able to extend that later this week,” Nelson, a Democrat, told reporters traveling today with President Barack Obama on Air Force One to a speech in Jacksonville, Florida.

Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus of Montana, both Democrats, may seek to add the homebuyers extension to legislation extending unemployment benefits that may be debated as early as this week, according to Regan Lachapelle, an aide to Reid.

Lawmakers are under pressure from real estate agents, mortgage brokers and homebuilders to extend the $8,000 credit before it expires Nov. 30.

Baucus and Reid made a proposal last week to Senate Republicans that would extend the homebuyer credit through 2010, Lachapelle said. First-time homebuyers who close before April 1 would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.

See for complete article.

Case Shiller Index released tomorrow.

I was on the OPB’s Think Out Loud program discussing The First Time Buyer Credit this morning.  I come on the show 36 minutes in: Think Out Loud Home Buying (mp3).

I’d like to see the credit expanded to all primary residence purchases without increasing it from the current $8000 to see if that can stimulate the entire real estate market.  I’d support lowering it to help pay for it to- $5000?  I also think that a lot of people may find the three year requirement a challenge; things change.  Ultimately lending requirements and perhaps more price softening is what it is going to take to stimulate the $500,000-$750,000 range in Portland.

I’d also like to see it used for investment back into the house, not for a European vacation, and don’t know how you control that.  Could it be done by having the IRS give the credit and then the buyer providing an accounting of how it was spent on the following year’s returns with what wasn’t spent as taxes owed?  Then how do you determine what was a valid expense?  What about a move-in ready house or condo?  Spending $8000 might be frivolous…

The changes (not saying they are bad) in lending have taken away the ability to draw on the equity in the home which means that many buyers have lost the ability to put money into their houses after closing making the move-in ready house more appealing and taking away some of the ability to build sweat equity.

Of course, as has been pointed out, asking a Realtor if the Credit should be extended is a bit like asking the fox if the door to the hen house should be removed.  The smart fox though needs to keep  the future in mind while contemplating the present.  The Credit has helped but I don’t think the wheels are going to come off if it expires and I do think it can be improved.

The National Association of Realtors estimates that an additional 350,000 people bought real estate this year because of the first time buyer credit.  Calculated Risk, in turn calculates that the cost of the $15.2B program was therefore $43,300 per additional house sold. That’s because 1.9 million people qualified for the credit.

What seems harder to gauge is what goes back into the economy.  I met with a buyer last week at their soon-to-be house and he said to the contractor, “when we close we’ll have the $8000 to spend on improvements.  We’re doing just what the government wants us to do with it.”

I’m sure there is a “for every dollar spent, $x goes back into the economy” but I can’t find it.  Clearly not all of it goes back into the economy: stuffing it in the mattress for example.

If the Credit is allowed to expire on December 1 (close by November 30th) time really is running out to have a cushion with closing.  It appears possible that it will be expanded.  Diana Olick reports on her CNBC blog:

…the first time home buyer tax credit, set to expire Nov. 30th. No question, sales of new construction have been juiced by the $8000 bonus, and without it, we could see a reverse in overall sales. This month’s home builder confidence survey from the National Association of Home Builders showed a drop in the index measuring sales expectations over the next six months.

There is a bill on Capitol Hill, introduced several months ago, that would extend the credit, expand it to $15,000 and make it for all home buyers, not just first timers. But while it was easy enough to get the credit lumped into the economic stimulus package, it may not be so easy to do it as a stand-alone bill. While some insiders tell me a small housing package is in the works, others give it a much smaller chance given how much pressure Congress and the Federal Reserve are under right now over the budget deficit.

The bi-partisan Home Ownership Moves the Economy (HOME) Act of 2009 (H.R. 2801) has been assigned to the House Ways and Means committee.

NAR and the real estate related associations are pushing hard for an extension and expansion of the Credit.   That makes sense (though it has added less than one home sale per licensed Realtor).  It certainly hasn’t hurt our industry in the short term.  Inventory has dropped but so have interest rates.  Holding interest rates low potentially is something that is available to all home owners and buyers but does not stimulate the economy with cash in hand.

A $300,000 loan at 7% for 30 years is $1995.50 per month (PI).  At 6% it drops to $1798.65 ($196.85 per month).  Over 30 years, that’s $70,866.  $8000 is recovered in 41 months (using a small loan amount will of course extend the recovery time).  Under the rules of the First Time Buyer Credit, you have to stay in your home 36 months.  I don’t necessarily subscribe to the theory that the sky will fall if the Credit expires.  It would be interesting to see it expanded to a broader buyer or help the entire inventory, not just a portion of it.  The middle of our market segment from $500k to $700k is at a near standstill.  If we can’t free it, it will continue to exert downward pressure on the entire Portland housing market.

The Oregonian reports today about the funds our area has received from the Neighborhood Stabilization Program.  Through the program managed by the Portland Development Commission, eligible buyers in eligible neighborhoods can by eligible houses by making use of a $50,000 interest free second loan.  The map below is from the PDC Website and is a graphic- their interactive map should be the definitive authority.

Oregon-NSP-Property-Map. Verify on PDC website.

The Oregonian article by James Mayer cites estimates that 20 to 25 buyers may benefit from the program.  The home must be bank owned (foreclosured), in the areas the designated by the program, and cost less than $266,000 and at least 1% under appraised value.  Buyers are limited to an income limitation of $84,000: 120% of the median income for Multnomah County.

The program looks to be very much like the first iteration of the $7500 First Time Buyer Credit of 2008.  The money must be repaid when the house is sold or changes hands.  It is a loan, not a credit like the current $8000 First Time Buyer Credit which expires on December 1st if Congress does not act.  An accountant would need to verify the elibility of a buyer using both the First Time Buyer Credit in conjunction with the PDC funds.  Also note that the PDC website on the Own Your Own Loan program has some additional requirements and some that are different than those cited in the O’s article.

The way the first time home buyer credit is written now, you have until November 30, 2009 (109 days as of 8/13) to close on your new home (if you qualify for the credit).  Realistically, its earlier than that as Thanksgiving falls on November 26th.  I’d be planning on closing no later than November 20th and even that may not be enough cushion if something goes wrong.

Will the buyer credit be extended?  Who knows?  Congress could let it expire, extend it or change it.  The first iteration was the $7500 credit which was really a loan. Then it became a true tax credit for those that qualified under the rules of a first time buyer (interesting IRS scenarios).

On August 5th, House Representitive Harry Mitchell (AZ) said:

“The current $8,000 credit for first-time buyers has had a constructive effect on our housing market and I am happy to hear that Senator Reid supports its extension,” Mitchell said.  “But we can do more.  We should expand the tax credit by making it available to every qualified American who wants to buy a home, not just first-time home buyers, and should examine increasing the value of the credit as well…”

It looks like the next chapter is just starting to be crafted.  There are no proposals on the table, just talk.  It may already be to late to close a short sale within the time allowed. Some questions that will have to be addressed (my very partial list):

1. Should there be (should there have been) a provision/amendment for an accepted offer on a short sale pending bank approval that  misses November 30?
2. Should “first time buyer” be dumped as a qualifier?
3. Should it remain at $8000, be raised or lowered?
4. How does Cash for Clunkers effect the government’s ability to continue the buyer credit?
5. Should there be an Investor Tax Credit?  What, if any, qualifiers would you put on that?

My title statement of this post may or may not be true.  We’re always looking for clients both through referrals and other sources of business but there’s a chance that you don’t want to work with me (or another memeber of the team) and vice versa.

Sunday’s Oregonian featured real estate story is all about selecting a Realtor. Having spoken against dual agency early and often in the past, the article made me smile.  Especially this quote which was also the second page headline:

“Sometimes you see dual agencies that represent both sides.  But that’s like a husband and wife hiring the same attorney for a divorce,” [Michele Gila, principal broker for Roots Realty said.]

I’ve also advocated clients using more of an interview process when selecting a Realtor but in many ways the initial contact and what the Realtor does or doesn’t do is self-selecting.  If your Realtor is a referral there is some inherent relationship already but if not, the interview is even more important for both the client and Realtor.

Melvin Broadous, a Realtor with RE/MAX Equity Group in Beaverton:

“If you find a Realtor you think you want to work with, take them on a ‘date,’ ” he said. “Go to Starbucks or to lunch and talk about whatever. Find common ground.

“If you don’t connect with a person intellectually, emotionally, from a relationship standpoint, then working with them professionally will be difficult,” he said. “It doesn’t take longer than 15 minutes. You’ll know.”

More on referrals: our goal in a transaction isn’t to simply get it closed and move onto the next transaction.  Our goal is to gain a client for the long-term that will refer us to their friends and family.  That doesn’t necessarily mean getting that first transaction closed.  We’ve advised, “run away” more than once!  Eventually a willing and able buyer will eventually buy but it may not be this week or this year.

The poll results above ran in 2007 as a part of this post.