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In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale. For 2009, Congress has increased the credit to $8000 and made several additional improvements. This revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009 purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was $6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers determine their tax liability by referring to tables that the IRS prepares each year.
5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but most income tax software programs are equipped to make that determination.
6. Is there an income restriction?
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the credit if their income is no more than $75,000. Married couples who file a Joint return may have income of no more than $150,000.
7. How is my “income” determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final number that appears on the bottom line of the front page of an IRS Form 1040.
8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US. Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income (MAGI). Their eligibility for the credit will be based on their MAGI.
9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the credit?
Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after an individual’s income reaches $95,000 (single return) or $170,000 (joint return). For example, if a married couple had income of $165,000, their credit would be reduced by 75% as shown: Couple’s income $165,000 Income limit 150,000 Excess income $15,000 The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).
In this example, the disallowed portion of the credit is 75% of $8000, or $6000 ($15,000/$20,000 = 75% x $8000 = $6000) Stated another way, only 25% of the credit amount would be allowed. In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes single-family detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling. Even some houseboats or manufactured homes count as principal residences.
11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for the credit.
12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit. Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now, mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for below market loans to qualified buyers.)
13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.
Some Practical Questions
15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form 5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.
16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the purchase and settlement phase of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can modify their income tax withholding (through their employers) or adjust their quarterly estimated tax payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their employer, follow the instructions on the schedules provided and give the completed Form W-4 back to the employer. In many cases their withholding would decrease and their take-home pay would increase. Those who make estimated tax payments would make similar adjustments.
Some “Real World” Examples
18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as “purchased” when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings must occur before December 1, 2009 for purchases to be eligible for the credit.
19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to get the benefit of the credit?
You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15, 2009. They actually have three filing options.
If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on the 2008 return due on April 15.
They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for instructions on how to obtain an extension.)
If they have filed their 2008 return before they purchase the home, they may file an amended 2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)
Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on their 2009 return. Their 2009 tax return is due on April 15, 2010.
20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?
No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500 credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008 tax year. This amended return will enable them to obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the 2008 credits are repaid?
No. Congress anticipated this confusion and has made specific provision so that there would be no repayment of 2009 credits that are claimed on 2008 returns.
22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from you, even if he is a first-time homebuyer.
23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000 DC credit and the $8000 credit?
No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are somewhat more easily satisfied than the DC credit.
24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of the credit back to the government?
One situation does require a recapture payment back to the government. If you claim the credit but then sell the property within 3 years of the date of purchase, you are required to pay back the full amount of any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This provision is designed as an anti-flipping rule.
25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within the first three years of ownership, there is no recapture. Special rules make adjustments for people who sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to condemnation by eminent domain by an authorized agency) within the first three years.
26. I have a home under construction. Am I eligible for the credit?
Yes, so long as you actually occupy the home before December 1, 2009. WITHHOLDING EXAMPLES: Note: The impact of estimated tax payments would be the same. Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000. She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit. Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of the full $8000. Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments; Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time homebuyers and are eligible for the $8000 refundable tax credit. Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit = $9200) Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint return. When they file their income tax return, their combined withholding is $5000. However, their total tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also qualify for the $8000 first-time homebuyer tax credit. Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition, they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or interest, that amount would reduce the refund.
Copyright National Association of REALTORS, Reprinted with permission
By Ethan C. Nobles
Arkansas Realtors® Association ● Ethan@ArkansasRealtors.com
With all the talk about the importance of credit scores these days, one might be compelled to believe that it’s difficult to take out a mortgage without a spotless credit history.
That’s not the case at all. While it’s true that banks are looking closer at credit scores and are diligent about verifying the incomes of people looking for mortgages, the some investors backing Federal Housing Administration (FHA) loans require a minimum Fair Isaac Corporation (FICO) credit score of 620.
The FICO score, of course, is the standard used by lenders in determining whether to extend credit to an applicant. The good news here is that a FICO score of 620 is indicative of a credit score that is fair-to-middling. Someone with a FICO score of 620 will have a few negative issues in his credit history.
That is surprising, of course, because the myth is that lenders are looking for almost spotless credit before they’ll extend a mortgage. Of course, whether or not someone with a FICO score of 620 can get a loan from a particular bank is another matter – some investors won’t agree to back a loan unless the score is higher.
However, there are banks out there that will approve an FHA loan for people with one of those fair-to-middling credit scores. Someone who has been rejected by one bank might find another that will write a mortgage. The best thing to do, then, is to shop around a bit if a FICO score is in that 620 range.
It is important to note that the FHA does not suggest a minimum credit score. Investors set their own guidelines.
More good news for people interested in an FHA loan is that most homes in Arkansas fall well under the maximum amount for which an FHA mortgage will be insured. One of the primary differences between an FHA mortgage and a conventional one is the down payment.
Arkansas mortgage bankers have confirmed that down payments are very important these days. Most lenders writing conventional mortgages require a down payment of around 5 percent, but most FHA mortgages can be had for around 3.5 percent of the value of the home to cover a down payment and the fees and costs associated with the loan.
If you’re talking about a home that costs, say, $250,000, that could mean the difference of about $3,750 – the down payment for a conventional mortgage in that scenario would come to $12,500, whereas the down payment plus costs on an FHA loan would be $8,750.
On top of all of that, you’ve got the $8,000 tax credit for first time homebuyers from the federal government. Under IRS guidelines, a first time homebuyer is defined as someone who has not owned a primary residence for three years.
That first time homebuyer, in our scenario, would receive all but $750 of that $8,750 down payment back in the form of a check. When one considers mortgage interest rates that are hovering around 5 percent, it does appear there are a lot of advantages right now for someone wanting to purchase a house.
At the Arkansas Realtors® Association, we certainly hope there are plenty of incentives for people to purchase homes. One of the things that will get the economy moving again is a healthy housing market, so hearing of new incentives for people to purchase homes is always good news.
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House to House is distributed weekly by the Arkansas Realtors® Association.
Quite often, events emerge in real estate markets throughout Arkansas that are worth watching.
While it’s too early to say whether a trend is developing or not, something that is worth watching has happened – average list prices in four major areas in Arkansas have been on the rise since January. What’s more, inventories are remaining fairly stable and even dropping from week to week here and there.
Every week, the Arkansas Realtors® Association (ARA) keeps up with average list prices and inventories – the number of homes for sale –in Benton and Washington counties, the six counties in central Arkansas, the Fort Smith/Van Buren area and the Jonesboro area. Taken together, the average list price of a new or existing, single family residence was $222,784 on Jan. 5 and had increased to an average of $228,640 on March 30.
You’ll notice that average is a bit high, considering how the average sales price of a home in Arkansas is around $70,000 to $80,000 less than that. However, bear in mind that the inventory includes a lot of higher priced, new homes and Realtors® have noticed that buyers are more drawn toward lower price houses these days. The average sales price, then, reflects what is sold whereas the average list price reflects everything on the market.
Meanwhile, inventories stood at 11,951 homes for sale on Jan. 5 and had increased to 12,130 on March 30. The area that saw the most rapid decline in homes for sale was northwest Arkansas, where 5,573 homes were on the market on Jan. 5 and 5,440 were for sale on March 30.
That’s not a huge decline in northwest Arkansas, of course, but it is significant as people in the real estate industry in that part of the state have been waiting to see a decline in inventory levels for some time.
Slight drops and slight increases in inventory levels are good when you’re looking at housing markets that are going through transition, but here’s the question – why are average list prices still increasing? Shouldn’t people be asking for less money for their homes?
That’s a tough question to answer. However, a statement from an appraiser does shed some light on the issue – homeowners in Arkansas haven’t reached the point where they are so desperate that they’ll settle for less money than their homes are worth. That’s encouraging, seeing how sellers in some markets around the nation are willing to consider some very low offers.
Meanwhile, Realtors® have mentioned that some sellers are becoming more reasonable in how much they want for their homes. A lot of people are getting the idea that it’s no longer 2005 and their homes are appreciating in value like they were a few years ago.
So, more homeowners are listing their homes in line with fair market value. That invites more offers from buyers, which might explain why Realtors® are reporting they noticed more activity in March.
Again, it’s far too early to tell if we’re looking at the beginning of a trend here. Still, it’s something worth watching.
Every week, the Arkansas Realtors® Association (ARA) compiles average and median list prices as well as the number of homes for sale in four areas of the Natural State.
The areas covered are six counties in central Arkansas, Benton and Washington counties in northwest Arkansas, the Fort Smith/Van Buren area in western Arkansas and the Jonesboro area in northeast Arkansas. A chart showing the combined homes in inventory (houses for sale) and the average list prices across those four areas can be found at the ARA website at www.arkansasrealtors.com. The chart is located under the “non-member resources” menu in the “list prices and inventories statistics” submenu.
Over the past few weeks, an intriguing trend has emerged – the number of homes in inventory has been dropping while the list prices in those areas have increased. One would expect the average list prices to drop, too.
Springdale Realtor® Bob Downum said the average list prices in the report doesn’t tell the whole story. He said one of the reasons list prices appear to be on the rise is that more expensive homes are remaining in inventory while smaller, less expensive homes are selling well.
The more expensive houses, then, tend to pull up the average. That makes a lot of sense when you consider the average sale price for a home in Arkansas in February was $141,349 – it seems fairly obvious, then, that the more expensive homes are remaining in inventory longer than the lower priced ones.
By the way, the four areas listed in the report were chosen based on the idea that, taken together, they are fairly representative of housing markets throughout the state. Of course, each local market varies, but those four markets provide a fairly reliable snapshot of some universal conditions in the Natural State.
Downum said in northwest Arkansas prices of many homes – several of them in the foreclosure market – have dropped to the price point that a lot of people can’t resist. A lot of investors, he said, are finding homes for as low as $50,000 and they are snapping them up with the intention of renting them and turning a profit.
Cabot Realtor and ARA President Bob Walker agreed that a good number of foreclosure and lower-priced homes are coming off the market. He added that the existing homes market has also been buoyed by a good number of new homes that were in foreclosure but have been purchased.
With few people building new homes, that owners of existing homes aren’t competing with new houses that were reduced in price for one reason or another. That, overall, helps the existing homes market.
Furthermore, the promise of an $8,000 tax credit that doesn’t have to be paid back for first time homeowners has attracted a lot of people to the more affordable houses on the market. That, of course, has removed a lot of the lower priced homes from housing inventories, too.
Downum went on to say that it’s not certain when market prices will reach bottom, but he believes we are very close to that time in Arkansas. He may be right, considering that the statewide average sales price of $141,349 represents the first time in months that we’ve seen average sales prices increase from the previous month since June.
McDaniel warns of home repair scams
Every spring, it seems that scammers come out of the wood work to bilk people out of their money by offering to tackle home improvement projects.
And every spring, it seems that the Arkansas Attorney General’s office issues a warning about those scams. This year is no different as state Attorney General Dustin McDaniel has mentioned that home improvement scams are popping up around the state. Once again, the Arkansas Realtors® Association is advising of these scams as it is in the best interest of homeowners to be wary.
“These problems can start with a phone call or a knock at your door,” McDaniel said in a news release. “But regardless of how they start, they usually end with consumers losing a lot of money.”
Earlier this year, McDaniel’s office issued a consumer alert pointing out that the bad economy had resulted in a lot of new scams being perpetrated by ne’er-do-wells willing to separate anxious people from their money. One must wonder if the home improvement scammers will be out in increased numbers this spring.
At any rate, McDaniel’s warning is worth mentioning – home improvement scams have been around for some time, but people fall victim to them every year. The news release points out spring is the perfect time to tackle home improvement projects that can’t be done in the cold of the winter or the heat of the summer.
How can the legitimate home repair professionals and companies be separated from the scammers? McDaniel’s office has released a list of red flags that should alert any consumer seeking hired help with home improvements or repairs:
● You are contacted unsolicited.
● You are told that your work will cost less because there is extra material left over from a similar job in your neighborhood.
● You cannot find a business number for the company or contractor in the phone book and you can only reach the person by leaving messages with an answering service.
● You are asked to pay for the job upfront and in cash.
● You are told your job will be a demonstration project for other potential customers.
● You are told it is your responsibility to get the required permits for all work that is to be done.
In addition to those warning signs, McDaniel advises consumers to take the following steps before agreeing to hire someone to perform home repairs:
● Get recommendations and references. Talk to friends, family and other people for whom the contractor has given similar work.
● Get at least three written estimates from contractors who have come to your home to evaluate the work to be done.
● Check out the contractor with your local or state consumer protection officials.
● Insist on a complete, written contract. Know exactly the work that will be done, the quality of materials that will be used, warranties, timetables, the total price of the job and the schedule of payments.
If you believe you have been the victim of a home repair scam, contact the Public Protection Department the Arkansas Attorney General’s office at (501)682-2341 or toll free at (800)482-8982.
Congress, once again, is taking up legislation designed to prevent mortgage companies from steering homebuyers into loans they can't afford.
Nationally, foreclosure rates have been alarmingly high and a number of groups are blaming mortgage companies who engaged in predatory lending by not being forthcoming about the terms of loans. It has been alleged more than a few times that a lot of people having trouble paying their mortgages didn't know what they were getting into when they took out those loans – that some lenders disguised the terms of those mortgages in hopes of getting bonuses for convincing people to take them.
The Mortgage Reform and Anti-Predatory Lending Act of 2009, then, is an attempt to regulate the mortgage industry. The bill, if passed, would end bonuses for brokers who steer borrowers into higher-priced loans and would require lenders to confirm borrowers' income.
Also, the bill would prohibit lenders from making new loans or refinancing loans that don't offer tangible benefits to borrowers. Two years ago, the House of Representatives passed a bill to regulate the mortgage industry and curb predatory lending, but it died in a Senate committee.
It's worth mentioning that a good number of lenders have put their own measures in place to cut down on the shaky loans that have been blamed for at least high foreclosure rates in some cases and a sluggish economy in others. Anyone wanting to take out a mortgage, for example, had better be willing to come up with a down payment.
Additionally, it's an established fact that lenders are looking more closely at credit reports than they have in the past and most mortgages require a down payment. Lenders have data suggesting that someone willing to put 5 percent of the purchase price down on a mortgage is more likely to carry though on the obligations under that loan than someone who puts down no money.
Mike Milner, past president of the Mortgage Bankers Association of Arkansas, said the investors behind many loans are requiring lenders to pull credit reports and verbally verify employment and income immediately before a loan closes. He believes virtually all investors will require those extra checks before long as lenders are very interested in taking what steps they can to cut down on loan default and foreclosure rates.
That makes a lot of sense, of course, as lenders lose money when a home goes into foreclosure. Taking a few extra precautions before a loan closes reduces the risk to the lender.
The National Association of Realtors® has come out in favor of some mortgage industry reform. Also, Congress is taking a look at new regulations and lenders appear to be taking steps to cut down on the trouble they've had due to the issuance of shaky mortgages.
Whether or not the government takes action, it seems very clear that lenders and members of the real estate industry are aware of the problems caused when borrowers take out loans and can't pay for them. A lot of groups are working to fix those problems and a more stable mortgage industry will hopefully emerge as the result.
The National Association of Realtors® (NAR) on May 4 issued a report stating that the pending homes sales index was up for March.
The NAR’s Pending Homes Sales Index is based on contracts signed in March and showed an increase of 1.1 percent over March 2008. The index is based on national pending sales and can be found on the Internet in the news releases section listed at www.realtor.org/press_room.
In Arkansas, the March sales figures were still drifting in to the offices of the Arkansas Realtors® Association so it’s impossible to say for sure whether that month was a booming one for Arkansas markets. However, there is enough anecdotal evidence out there to suggest that Realtors® in the Natural State are at least optimistic.
According to some Arkansas Realtors® and reports from the NAR, first time homebuyers are driving a lot of sales now. Specifically, almost half of all homes sold these days are to first time homebuyers, the NAR said.
What’s bringing them to the market? There are at least three things that are convincing people to purchase homes. First of all, there has been downward pressure on prices for over a year now. The latest finalized report for Arkansas is from February when the average sales price across the state was $141,349 – down 3.5 percent from $146,487 in February 2008.
Arkansas real estate agents have said that continued, downward pressure on prices has convinced some of the “fence sitters” that the current climate is a good one in which to purchase a home.
Second, there’s the $8,000 tax credit for first time homebuyers to consider. Generally, people who haven’t owned a primary residence in the past three years and individuals making less than $95,000 per year ($190,000 for couples) can take advantage of the tax credit. Eligible homebuyers purchasing a house from Jan. 1 through Nov. 30 can take advantage of the tax credit.
That credit, by the way, is in the form of a check from the government for 10 percent of the purchase price of the home or $8,000 – whichever amount is smaller – and does not have to be repaid.
Furthermore, mortgage rates are at historic lows, coming in at less than 5 percent on a 30-year, fixed rate mortgage. How much of a bargain is that rate? Low enough that banks have reported refinancing mortgages that were taken out a mere six months ago because people applying for them found they could save money in the long run in spite of closing costs.
Bear in mind that no one is claiming the market is back to normal and that we’ll see no more market corrections. However, there are more than a few Realtors out there who say that we know better days are ahead when we see more activity in the lower price ranges.
Those are the price points where first time homebuyers tend to shop and there has been a lot of activity among buyers looking at homes costing around $150,000 or less. For that reason, a number of Arkansas Realtors® are cautiously optimistic.
There was a time when wall-to-wall carpeting was the preferred luxury in homes.
Benton Realtor® Denise Hyde said diversity is the best way to describe the flooring industry these days – people are looking for everything from carpet to hard surfaces such as stained concrete, hardwood floors and tile. In other words, carpet is still popular but it has competition.
“When it comes to comfort, they still want it. It hasn’t become obsolete,” Hyde said of carpet, adding that some people prefer hard surfaces. “I guess younger people tend to favor stained concrete, whereas hardwood floors and tile tend to appeal to everybody.”
She said hard surfaces are preferred by people worried about allergies and there seem to be a lot more of those people these days. Still, she said people focused on comfort and keeping down noise levels generally prefer carpet.
Hyde pointed out there was a time when it looked like carpeted bedrooms and hardwood floors throughout a home were going to be the norm. However, some other hard surfaces have gained in popularity over the past couple of years – stained concrete and tile.
What layout nets the most cash – hard flooring, carpeting or a combination of the two – on resale may be hard to determine as the value of flooring is subjective. Some good advice for people looking to remodel, then, might be to choose what they’re comfortable with and trust there will be buyers that will look favorably on those flooring choices when it’s time to sell the home.
Russ Halbert, owner of Premier Concrete Designs with offices in Benton and Fayetteville, is one of those people who have taken advantage of the increased popularity of stained concrete flooring over the past couple of years.
“I notice that a lot of people are getting on the allergy bandwagon now,” he said. “Also, a lot of people just want to know their alternative in remodeling – getting rid of what they have and getting something new.”
He said a lot can be done with stained concrete, ranging from single colors to complex, multilayered patterns that feature an array of colors and designs. Also, Halbert said it’s possible to have highly personalized designs such as school mascots, family crests and other custom details added to a stained concrete floor.
Of course, Halbert said too much customization may lead to something that will appeal to only a few people, thus cutting into the resale value of a home.
He pointed out that the use of stained concrete has evolved over the past few years to the point where intricate, polished surfaces are available for a reasonable price. To have a look at what Halbert’s company can do in the realm of stained concrete, visit his company’s portfolio on the Internet at http://premierconcretedesigns.net.
Halbert said his company works throughout Arkansas and has been busy these past couple of years putting in stained concrete surfaces in both new and existing homes and businesses. His company has contracted to do both indoor and outdoor projects.
The housing industry, as a whole, has been moving toward more customization. It’s no surprise that a lot of companies have sprung up to meet individual tastes when it comes to flooring.
For the past couple of years, the term “short sale” has become more common among people discussing real estate.
A short sale occurs when a bank allows a homeowner who has fallen behind on a mortgage sell the home for less than is owed on the mortgage. A short sale, then, if often touted as a preferred alternative to a foreclosure.
There is a problem with short sales, however. Most mortgage companies will only accept a short sale if it has been approved by its loss mitigation department. If that department determines the bank will lose less money by accepting a short sale than it would if a home was taken through the foreclosure process, then the chances are good the bank will sign off on the deal.
While the number of people wanting to go the short sale route has increased, most banks have not increased the size of their loss mitigation departments. That only makes sense – when times are tough, you don’t see just a whole lot of businesses out hiring new employees.
So, here’s what can happen in a short sale. Let’s say Bank A is agreeable to seeing short sale offers presented to Seller B. Buyer C makes an offer on the home and forwards it to Seller B, who sends it along to Bank A for approval.
The loss mitigation department at Bank A is dealing with a stack of short sale offers and is a bit slow in getting around to the offer from Buyer C. After a time, Buyer C gets tired of waiting, withdraws his offer and sends Seller B back to the drawing board.
On May 14, the Barack Obama Administration announced the Foreclosure Alternatives Program which is designed, in part, to speed up the short sales process. For details on the program, visit www.treasury.gov.
The program is in effect through 2012 and includes standardized documents designed to minimize the complexity and increase use of the short sale option. Also, incentives are built in to encourage mortgage servicers to pursue the short sales route.
Also, mortgagers are encouraged to exercise the deed-in-lieu of foreclosure option if a property does not sell within the time allowed in the short sale agreement. A deed-in-lieu foreclosure is, simply, an arrangement through which the mortgage company takes the deed to the home and releases the borrower from the debt.
Over the past few months, we’ve seen the government take a variety of steps to help mitigate trouble in the housing market in the wake of the failure of the subprime mortgage market, the economic recession and a number of factors that have make it next to impossible for some homeowners to pay their mortgages. The Foreclosure Alternatives Program is another one of those measures the federal government has put in place and, hopefully, a good number of homeowners will find it to their advantage to use it.
Thinking about skipping a home inspection? Think again…
Every now and again, the Arkansas Realtors® Association (ARA) feels it necessary to remind homebuyers to get a home inspection prior to purchasing a house.
Why? A lot of disgruntled buyers would have been in much better shape had they gotten a home inspection. Most homes have a problem or two so it only makes sense to find out what those problems are prior to purchasing the home.
Buyers will often fall into the trap of waiving their right to a home inspection because they either don’t want to spend the $200 to $500 to get one or they worry about hurting someone’s feelings. Perhaps they’re buying a home from a friend or a family member and feel the seller will take offense if a home inspection is ordered.
While home inspections will certainly unveil any sneaky tactics shady sellers are employing to actively conceal defects, most sellers are simply unaware of problems in their homes. Ordering a home inspection, then, should not be viewed as a challenge to the credibility of the seller – even the most honest homeowners may have problems in their homes of which they are unaware.
As for the inspection fee, it is a small price to pay to defend against problems in the future. Let’s say, for example, there are foundation problems in a home that aren’t readily apparent. The seller might not know about the problems, but the buyer will certainly want to be aware of them prior to purchasing the home – foundation problems are expensive to fix, so why not spend a few hundred dollars on an inspection fee in order to avoid potentially thousands down the road?
All Realtors ® in Arkansas used contracts that give buyers the option of either requesting a home inspection or waiving their rights to one. The ARA tells its members to encourage buyers to get an inspection in hopes of saving them a lot of trouble down the road.
Of course, if an inspection reveals expensive problems in a home, then the buyer and seller will likely negotiate over how to deal with them. If there are too many problems, the buyer may simply choose to walk away from the home.
More often, the buyer and seller negotiate over repair costs and who will assume them. It’s not uncommon for sellers to agree to provide a few hundred dollars to pay to repair minor problems in the house as most inspections reveal but few troubles.
In general, that’s all a home inspection will reveal – a few minor problems that are easily repaired. However, they uncover major defects, too, and no one wants to commit to spending thousands on a home only to find they’ll have to shell out big bucks to repair the problems that were lurking under the surface.
Georgia senator hoping to revamp tax credit
A Georgia senator has claimed all along that the first time credit for homebuyers doesn’t go far enough and he has introduced legislation to expand it.
U.S. Sen. Johnny Isakson (R-Ga.) on June 10 introduced legislation that would almost double the current tax credit, get rid of income limits on the credit and extend it to anyone purchasing a home.
Currently, federal law allows any first time homebuyer who purchases a home from Jan. 1 through Nov. 30 to receive an $8,000 credit from the IRS. That tax credit comes in the form of cash to people filing 2009 returns and does not have to be repaid.
A first time homebuyer is defined as anyone who has not owned his or her own primary residence for the past three years. The full credit can only be claimed by individuals making $75,000 or less and couples making $150,000 or less and the credit phases out completely for individuals making $95,000 or more and couples making $190,000 or more.
Isakson, in a news release, said the first time homebuyer’s tax credit has helped get housing markets moving again and he appears to be right. According to the National Association of Realtors® (NAR), close to half of all homebuyers are these days are first time buyers who have been attracted to the market because of the tax credit and historically low interest rates.
Isakson’s bill, if passed, would expand that tax credit to $15,000 for both homeowners coming in after the bill became law and people who have already purchased a house this year and are anticipating the $8,000 credit. Furthermore, all homeowners would be able to take advantage of the credit and the income caps would be removed.
Isakson’s idea, of course, is nothing new. The NAR pushed for a similar measure last year but Congress passed the current credit instead.
The question, of course, is whether Isakson’s bill will be successful. That’s impossible to say, but he has lined up some supporters for it. The bill’s co-sponsors include senators Lamar Alexander (R-Tenn.), Jim Bunning (R-Ky.), Saxby Chambliss (R-Ga.), Chris Dodd (D-Conn.), John Ensign (R-Nev.) Joe Lieberman (ID-Conn.), Lisa Murkowski (R-Alaska), James Risch (R-Idaho) and David Vitter (R-La.)
Isakson argues that a similar tax credit helped revive real estate markets in the mid-1970s and would work today. In the 1970s, there was a three year supply of vacant homes on the market and Congress passed a $2,000 tax credit for anyone purchasing a principal residence.
It’s worth noting that Dodd – the chairman of the Senate Banking Committee – has signed on as a co-sponsor.
Isakson argues that credit was primarily responsible for the stabilization of home values, drops in the number of homes for sale and recovering markets. While we’ve seen clear drops in the number of homes for sale and houses have held their values relatively well in Arkansas, it’s very clear that there’s room for improvement in housing markets throughout the state.
The National Association of Realtors® (NAR) announced the Pending Homes Sales index was up in May for the fourth straight month but expressed concern about the impact of the Home Valuation Code of Conduct (HVCC) on future sales.
The Pending Homes Sales Index – published monthly by the NAR – is based on the number of homes that were under contract in May but had not yet closed. In May, the index stood at 90.7, up 6.7 percent from the same month last year.
What does that 90.7 number mean? It’s a number relative to the baseline, average level of contract activity in 2001. An index of 100 means the number of pending sales is on par with 2001. The index covers existing homes under contract and does not address sales of new homes.
NAR Economist Lawrence Yun pointed out the index has climbed for four consecutive months – something that hasn’t happened nationally since October 2004. He said the first time homebuyer tax credit, low interest rates and downward pressure on home prices have all contributed to the climbing index.
However, Yun said there is some concern over contracts being taken to closing late or not at all. Pending sales generally close in one or two months. One of the things causing contracts to fail, Yun said, is the HVCC.
The HVCC is an agreement between Fannie Mae, Freddie Mac and the New York Attorney General’s office that was developed because of concerns that appraisers were under too much pressure from lenders, Realtors® and other entities to inflate the values of homes. The agreement may be the result of activities in New York, but it has been applied nationwide to all mortgages handled by Fannie Mae and Freddie Mac.
The complaints about the HVCC from lenders, appraisers, Realtors® and other groups could fill a book – they won’t all be addressed here. The NAR has expressed concern over the proliferation of appraisal management companies.
Under the terms of the HVCC, lenders and anyone who is compensated on a commission basis upon the completion of the loan are forbidden from selecting or communicating with the appraiser assigned the task of coming up with the value of the property at issue. So, appraisal management companies have stepped in to pick up the slack.
NAR President Charles McMillan said the problem with that system is that – quite often – appraisers are called in from areas outside the location of the property at issue to determine the value of that property. Mix the lack of knowledge of local markets with pressure to rush appraisals out the door quickly and you’ve got the potential to undervalue property.
Since banks aren’t in business to lose money, they tend to refrain from writing a mortgage for more than a property is worth. A low appraisal, then, can kill a sale quicker than anything.
There has been some legislation introduced in Congress to delay the implementation of the HVCC. Clearly, this is an issue that we at the Arkansas Realtors® Association will watch closely.
Arkansas Realtors® Association ● ecnobles@att.net
Realtors® throughout the state have said it appears there are more than a few prospective buyers waiting for interest rates to drop.
If the folks over at Mortgage-x.com are correct, the likelihood of interest rates dropping on 30-year, fixed mortgages is very slim. We saw interest rates drop below 5 percent in March but they had climbed above 5 percent at the first of June and were holding relatively steady at 5.25 percent at the end of July.
Mortgage-x conducts a weekly survey and asks 250 mortgage professionals about interest rates. In the August 3rd survey, 20.7 percent of the respondents said we’re in for slight increases over the next 30 days and 17.2 percent were calling for slight increases over the next 90 days. As for decreases, 48.3 percent of the respondents expect to see slight drops over the next 30 days and 37.9 percent are calling for slight decreases in the next 90 days.
Furthermore, 31 percent of the respondents expect to see rates change the same over the next 30 days and 37.9 percent expect those rates to remain unchanged over the next 90 days.
If those experts are right, we’re in for – at most – slight increases or decreases in rates over the next three months. In other words, we’re probably going to see rates hover around the 5 percent range in the immediate future.
That’s not an altogether bad thing. After all, a year ago, the interest rate on a 30-year fixed mortgage was around 6.25 percent and mortgage rates hit around 8.5 percent at the start of 2000 - the highest rate on record in the 21st century.
Government intervention, frankly, is largely responsible for low interest rates. The day before Thanksgiving, the rate on a 30-year, fixed-interest mortgage was 6.04 percent. On the day after Thanksgiving, however, the Federal Reserve announced it was buying up $500 billion in mortgage-backed securities.
That level of involvement has caused mortgage interest rates to drop as they are tied closely to those mortgage-backed securities. When the government announced it was backing those securities, they became more attractive to investors. The more stable mortgage-backed securities are, the more the yields drop – lower yields translate into lower interest rates.
The federal government is still spending $20 to $40 billion a month on mortgage bonds, but interest rates have climbed. Why? A lot of people decided to refinance when rates dropped below 5 percent, thus creating more mortgage-backed securities. The demand for those securities dropped a bit among foreign investors but more of them became available due to refinancing.
When supply outstrips demand when it comes to mortgage-backed securities, yields increase as an attempt to entice investors. Interest rates rise along with the yields.
So our current interest rates appear to be here to stay for at least a few months. What they’ll do in the future is anyone’s guess, but it’s very clear that we’re looking at interest rates that are comparatively low.
Whether interest rates are high or not seems to be a matter of perspective. The current ones appear high to what people got used to a few months ago, but they are very low when paired up against rates we’ve seen over the past few decades.
The Arkansas Realtors® Association (ARA) released its June housing market report the other day and the results were decidedly mixed.
Statewide, sales were down 4.52 percent in June compared to the same month a year ago and the average sales price dropped 6.75 percent – $149,532 in June 2009 compared to $160,359 a year ago.
What is encouraging about the report is how some trends developed in the top Arkansas markets that are generally positive. If we look at just the top five markets in the state – Pulaski, Benton, Washington, Saline and Faulkner counties – we see that sales were actually up in those areas.
In June, 1,245 sales were recorded in those markets – up slightly from 1,236 sales in those same areas in the same month last year. Furthermore, there is a reason prices dropped statewide – homes costing $140,000 or less are in short supply these days due to the $8,000 first time home buyer’s tax credit.
It’s no surprise, then, that average prices dropped in a lot of areas due to the demand for homes in that $140,000 and less price range. First time home buyers generally shop for homes in that range and that has concerned some Realtors®.
The reason for the concern has to do with the deadline to claim the tax credit. Everyone claiming the credit must have completed their transactions before midnight on Nov. 30.
Because of the popularity of those lower priced homes, buyers are shopping a bit longer to find the houses they want. If it takes 30 days to find a home and another 30 to 45 days to close on it, then the deadline to start shopping is fast approaching.
Having said that, it does appear that prices and sales have started to moderate a bit throughout the state. Of course, some markets are performing better than others, but it does appear that there is more activity among buyers and that people are attracted to the market by low interest rates, some downward pressure on prices and other factors.
One question we get quite a bit here at the ARA is whether markets are showing signs of recovery. Bear in mind that sales tend to pick up in May through August every year and we’re certainly seeing signs of improvement in 2009.
However, we’ll know that markets have recovered should we enter the fall and see the momentum of sales realized in the summer carry through to September, October and November. We’re certainly hoping we’ll see markets continue to improve through the fall, but it’s anyone’s guess as to whether that will happen.
Meanwhile, homeowners can take some comfort in the fact that Arkansas markets haven’t behaved like those in areas of Arizona, California, Florida and Nevada. We’ve seen sales and prices both drop a bit, but nothing on the level people have had to put up with in the aforementioned states.
Closer to normal?
We get one question quite a bit here at the Arkansas Realtors® Association – when will the housing market recover?
Since we’re not in the crystal ball business, we’ve been more than happy to decline answering that particular question. Besides, we’re not economists and prefer to leave such forecasting to people who make such predictions for a living.
Lawrence Yun, the chief economist for the National Association of Realtors® (NAR), is one of those people who make predictions for a living and his forecast is more than a bit encouraging. While he certainly acknowledges that some national markets are struggling and have a way to go before they can go through anything remotely close to a recovery, he says most markets are approaching normalcy.
In other words, housing markets throughout the nation are showing signs of improvement and Yun said we should see more improvement next year. It’s worth pointing out that Yun isn’t talking about an overnight recovery or claiming there aren’t still some problems in the market.
However, the notion that markets could return to normal levels next year is good news.
Yun did mention that a recovery in the housing market will only come with improvement in the overall economy. If the stimulus programs that have been in place by the Barack Obama administration work and we do see reductions in unemployment numbers, then tax revenue will increase and the government can pay down the budget deficit that is the result of pumping cash into the economy.
If the stimulus package doesn’t work as expected and the expected unemployment gains aren’t realized, then the deficit becomes a problem, Yun said. The government, in some ways, would become similar to consumers carrying large debt loads – banks tend to not lend money to people who are heavily in debt or charge them high interest rates.
So, Yun said the budget deficit could lead to increased interest rates should the stimulus package not work the debt is carried forward. Currently, Yun said the market is not nervous about the deficit and people are of the opinion the federal government will pay it down as expected.
It’s always good to hear an economist say that housing market conditions are improving, but it’s even better to hear two economists who hold that opinion. Kathy Deck, director of the Center for Business and Economic Education at the University of Arkansas, said housing markets in the state are showing signs of stabilization.
Sales, she said, are no longer deteriorating like they were just a couple of years ago and that is a good sign. Markets don’t recover overnight, after all. Recovery takes quite some time and you’ve got to see conditions stabilize before they improve.
Again, Yun pointed out there are challenges to be overcome in national housing markets, but it does appear that things are improving. After watching sales decline from the boom years of around 1999 through 2006 in Arkansas, terms such as “normal” and “stabilization” being used to describe housing markets is certainly good news.
To hear the podcast of the presentation Yun made to the Little Rock Realtors® Association on Aug. 13, go to the Arkansas Realtors® Association’s blog at arkansasrealtors.com/blog and download it from there.
The National Association of Realtors® (NAR) reported that homes sales had improved for four consecutive months through July.
Here at the Arkansas Realtors® Association ARA, we don’t have the July housing market number compiled for the state yet, but we’re inclined to go along with what the NAR has reported.
Specifically, the NAR stated that existing homes sales were up 7.2 percent nationally in July compared to June. That sounds about right considering how we’ve been watching homes sales improve every month since March here in Arkansas.
Realtors® in throughout the state have taken that improvement as a good sign because sales have to improve consistently before a recovery. Will that improvement lead to a recovery? We certainly hope so but that remains to be seen.
What is good news, of course, is that a lot of first time home buyers have entered the market due to the $8,000 tax credit for people who haven’t owned a principal residence in the past three years. That credit expires after Nov. 30, so Realtors® in the state have been encouraging people who want to take advantage of that tax credit to do it soon – if it takes 30 days to find a home and another 30 days to close on it, then people who start shopping two months prior to that expiration date are cutting it close.
At any rate, those first timers have certainly boosted sales in Arkansas and the hope is the activity at the lower and middle price ranges where those buyers are shopping will spread to more expensive homes. A few Realtors® in this state have mentioned that they expect to see markets recover at the lower ranges and spread to more expensive ones as sellers move up after selling their homes.
In addition to the NAR report, another encouraging sign is that inventories – the number of homes for sale – have dropped significantly in four Arkansas markets tracked by the ARA every week. In the central Arkansas, Jonesboro, Fort Smith/Van Buren and northwest Arkansas markets, the total number of homes in inventory on Aug. 24 stood at 12,314 units – down significantly from 14,132 homes a year ago.
In other words, the market has started to absorb the high inventory levels that were a major problem a year ago. When there are too many homes for sale, sellers tend to compete with each other and that drags down home prices – that’s not an ideal situation for someone selling a home and trying to realize a profit.
While there is still competition between sellers, it has eased somewhat and people are routinely getting 95 to 96 percent of their list prices for homes. In other words, someone listing a home at $200,000 will likely receive $190,000 to $192,000 for it in even some of the slower markets – that’s not bad considering how owners in some parts of the nation are struggling to get an offer anywhere close list prices.
The NAR’s report certainly came as good news and we do hope more sales gains are realized in the near future. While it might be too early to start talking about a recovery, it certainly isn’t a stretch to say that most markets in Arkansas appear to have stabilized and it’s not unrealistic to expect them to continue improving.
Arkansas Realtors ● Ethan@ArkansasRealtors.com
I received an email the other day from Tricia Fredinburg – a loan officer with Arvest in Little Rock – stating the lender will guarantee the first time home buyer tax credit to qualified buyers for all closings scheduled to take place on or before Nov. 20.
That initially struck me as odd because the tax credit doesn’t expire until midnight on Nov. 30. However, Fredinburg said there are all kinds of issues that could delay a closing so Arvest is trying to get people to recognize a deadline so they’ll have some time to take care of any issues that might arise.
She’s got a good point. A great one, in fact.
Fredinburg said the folks at Arvest will be working overtime to make sure they can get every qualified loan closed so that buyers can take advantage of the tax credit. In other words, Arvest – and probably every mortgage lender in this state – will do what they can to make sure everyone who is qualified for the tax credit gets it. Some issues that delay closings are out of the control of lender.
In other words, the bank is simply advising people that cutting things too close could result in a postponed closing and no tax credit. In addition to the normal issues that cause delays, Fredinburg pointed out the Nov. 30 deadline falls right after the Thanksgiving holiday and the long weekend that follows – that’s time lost to people scrambling to resolve problems and get to the closing table.
The closing date is critical because IRS deadlines state that people eligible for the tax credit must close on a home before Dec. 1. The tax credit, of course, is for buyers who haven’t owned a home in the past three years and follow certain income guidelines – individuals making $95,000 a year or more and couples making $190,000 or more are ineligible. The full tax credit is only available to individuals making $75,000 a year or less and couples making $150,000 a year or less.
The full tax credit totals an amount equal to 10 percent of the purchase price of the home or $8,000, whichever is less. The tax credit does not have to be paid back if the buyer stays in the home for at least three years.
Another issue that Arvest has raised – and we at the Arkansas Realtors® Association (ARA) have been talking about for a couple of months – is that people who wait until October to start looking for a home may be out of luck if they want to meet that Nov. 30 deadline.
Why? A lot of homes that are priced at around $150,000 or less have been selling quickly, so it might take about a month for shoppers to find the proverbial perfect house. It also takes around a month to close on a purchase.
This month, then, is the time for people wanting to get that tax credit to start shopping. Waiting around too long could result in a closing date past Nov. 30 and a missed opportunity.
Of course there have been rumblings coming out of Washington, D.C. this year about an extension of the tax credit. Waiting for that might be a mistake because, frankly, no one is sure if we’ll see another tax credit for home buyers next year.
There are no guarantees beyond the tax credit that is in place now, so we at the ARA have been advising people to take advantage of it before it’s gone.
House to House is distributed weekly by the Arkansas Realtors® Association
For the first time since December 2005, we at the Arkansas Realtors® Association released a housing market report that was largely positive.
In July, there were 2,574 new and existing, single family homes sold by Realtors® throughout the state – up 1.58 percent from 2,534 houses sold in the same month last year. Was that a huge gain? No, but it was the first gain we’ve reported in 42 months.
The report didn’t come as a huge surprise, really, as sales consistently improved after February. Interest rates have been low, there has been downward pressure on list prices, the selection has been very good and then there’s the first-time home buyer’s tax credit to consider.
That credit has been very important in the market. We can see the impact of it by looking at homes that cost around $150,000 or less as that’s the price range where a lot of first timers are purchasing homes. If we look at Benton and Washington counties, we see that Since June 1, there have been 1,786 sales in those counties — 1,030 of the homes sold cost $150,000 or less while 756 cost more than that.
That is significant because the less expensive homes have moved quickly in those two counties and the same is true of a lot of markets in Arkansas. It’s worth mentioning that the pursuit of the first-time home buyer tax credit has helped move those two counties – and others in the state – to positive sales growth territory.
Northwest Arkansas, after all, was the part of the state that boomed through 2006 when markets were hot and fell the hardest when markets started to slump. Now, Benton and Washington counties – easily the largest counties in northwest Arkansas – are reporting gains in sales.
A lot of that growth has to do with the first-time home buyer tax credit. We fully expect to see sales in Arkansas grow as long as people can obtain that credit, in fact.
Ah, but there’s a problem – the credit expires after Nov. 30. What happens then?
Frankly, we could speculate all day long about that but coming up with an accurate answer at this point is next to impossible. Rather than taking a “wait and see” attitude and hoping things will work out for the best, the National Association of Realtors® (NAR) has made the decision to back the horse that has helped slumping markets so far. The NAR is pushing for an extension of the current tax credit and may ask for an expansion of it if it becomes clear which of the 20 or so related bills in Congress has a good chance of passing.
That’s right – there are 20 bills that have to do with a tax credit right now. Those range all the way from extending the current first-time homeowner tax credit to increasing the amount of the credit and making it available to anyone purchasing a primary residence.
It’s not clear which – if any – of those bills stands a good chance of passing. However, one thing is clear – there’s a very good tax credit on the table now and people who wait until next month to start shopping for homes might not be in a position to close by Nov. 30 so they can take advantage of it.
In short, the July housing market report was very encouraging, but a good number of economists are still waiting to see some more reports similar to it before they’ll start talking about a recovery. The first-time home buyer tax credit has certainly helped attract buyers to the market and the NAR is betting that extending it will lead to more improvement.
It’s common knowledge that the first-time home buyer tax credit has given a healthy boost to sales this year.
According to the National Association of Realtors® (NAR), close to half of all home buyers these days are first timers looking to close before the $8,000 tax credit expires on Nov. 30. A common question we get here at the Arkansas Realtors® Association (ARA) is this – what happens if that tax credit isn’t renewed?
Frankly, that’s a question we hope to not have to answer. The NAR is lobbying to extend that tax credit or expand it to all consumers purchasing a primary residence next year. Whether Congress will offer a credit at all is anyone’s guess right now as health care reform has dominated discussions in our nation’s capitol.
It seems a theory is out there suggesting that the housing market will slump once again should the tax credit not be extended after Nov. 30. That may or may not be true – we at the ARA hope to seen an extension or expansion of the credit, but we’re not in the crystal ball business around here and are reluctant to predict the future.
However, there are some things about the current market separate and apart from the tax credit that have been somewhat overlooked. Interest rates and home prices are the best they’ve been in years – two facts that have been responsible for a number of sales this year.
Rates on a 30-year, fixed interest mortgage slid below the 5 percent mark in September and have hovered around that point since. Those rates might not last forever – the federal government started buying mortgage backed securities in January in an attempt to drive down mortgage rates.
The Federal Reserve Bank announced it will slow down those purchases in the first quarter of 2010 and that may drive up rates. That’s because the rates are directly tied to mortgage backed securities. As investments in those securities increase, the yields drop and take interest rates with them.
When investments slow down, interest rates increase.
As for list prices, those have remained relatively stable on the whole throughout the year. Still, Realtors® have mentioned that buyers are receiving somewhere between 96 percent and 98 percent of their list prices on average. It seems those buyers are in competition with each other and that is putting some downward pressure on prices.
One Realtor® summed it up this way – buyers are in a price war and a beauty pageant and they need to position themselves to win both. In other words, homes have to be more appealing aesthetically than other similar ones and they need to have an attractive price tag, too.
On the whole, there are a lot of issues surrounding real estate markets right now and a good number of theories as to whether sales will improve, decline or remain about the same in the near future. We at the ARA are just glad that sales have performed better in Arkansas than elsewhere and are hopeful that the first time home buyer tax credit will be extended. It’s worked well so far and would certainly do so in the future.
According to Hanley Wood (HanleyWood.com), the U.S. remodeling industry pulls in $306 billion a year.
The folks at Hanley Wood ought to know what they’re talking about as that group publishes Remodeling magazine and, as such, has kept close tabs on that industry for a couple of decades. Hanley Wood publishes an annual report in which the group takes a look at what a lot of homeowners want to know – what remodeling jobs offer the most return on an investment?
Batesville Realtor Bill Olson and Paragould Realtor Debbie Rawls didn’t hesitate a bit when asked what remodeling jobs offer the most bang for the buck – they said projects involving renovations of kitchens and bathrooms are the most valuable when a home is sold.
A Hanley Wood report issued in December confirms that Olson and Rawls are correct. According to that company, a minor kitchen remodel offers a 79.5 percent return on investment while a major one nets 76 percent of the project cost when a home is sold.
As for remodeling a bathroom, Hanley Woods reports that a remodel nets 72.9 percent of the initial investment when the home is sold. A bathroom addition, however, nets only a 63.5 percent return on average.
Bear in mind that the return on investment calculation is an attempt to let homeowners know how much they’ll recover if they sell the property shortly after the remodeling project is complete. The return on investment could be higher if the owner holds onto the home for a few years after the job is finished if the value of the home increases.
Meanwhile, Realtors® in Arkansas have confirmed that the old adage is true – it is very possible to recoup 100 percent of your initial investment (or more) in this state for kitchen and bathroom remodels. Again, we’re talking about netting that return on investment after holding onto the house for awhile instead of selling it immediately after the remodel is finished.
The Hanley Wood report, however, has revealed a few more remodels that satisfy the “bang for the buck” equation nicely. According to that company, the projects that offer the largest return on investment almost immediately after they are completed are a wooden deck addition (81.8 percent return on investment), vinyl siding replacement (80.7 percent), wooden window replacement (77.7 percent), vinyl window replacement (77.2 percent) and attic bedroom (73.8 percent).
You’ll notice the bulk of those projects are smaller than bathroom or kitchen remodels. The exception to the rule is the attic bedroom, which coasts on average $48,398 – $27,000 more than a minor kitchen remodel and $33,000 more than a bathroom remodel.
In addition to listing the remodeling projects that provide the highest immediate return on investment, Hanley Wood lists the ones that do not. The projects that fill out the bottom of that list are home office remodel (54.6 percent return on investment), sunroom addition (56.7 percent return), back-up power generator (57.2 percent), family room addition (65.9 percent) and master suite addition (66 percent).
Of course, we’re talking about national averages here. To see the Cost vs. Value Report for national regions and individual cities, visit www.costvsvalue.com on the Internet.
The September housing market report was a good one and we at the Arkansas Realtors® Association (ARA) couldn’t be happier.
Why? Because it was only the second one in 44 months to show gains in homes sales. There were 2,298 homes sold in September – up 9.85 percent from 2,092 sales in the same month a year ago.
We haven’t seen month-to-month increases like that since the July report when sales were up 1.58 percent. We’re not saying a trend has started here but we at the ARA do hope to see continuing improvements in Arkansas housing markets.
Throughout the state, the total value of homes sold was in positive territory, too. In September, the value of new and existing, single-family homes sold in Arkansas totaled $324.46 million – up 4.28 percent over $311.16 million a year ago.
That’s good news for sellers as it’s clear they had an easier time finding buyers in September. Realtors® throughout the state have been reporting multiple offers on homes, in fact – more good news for sellers.
The question, of course, is why did sales improve in September? The answer has to do with the $8,000 first-time home buyer tax credit. That brought a lot of buyers out this year. Now that the deadline on it has been extended to April 30 it’s not unreasonable to expect more buyers to take advantage of it.
The new tax credit should also encourage existing homeowners to enter the market. Over the past two years, first-time buyers have gotten a tax break but there’s a wrinkle in the new law that extends up to $6,500 to anyone who has owned a primary residence consecutively for at least five of the past eight years.
Under the new credit, then, qualified existing home owners who enter into a contract to purchase a home from Nov. 7 through April 30 will receive up to $6,500 in cash from the IRS when they file their tax returns. The reason that excites Realtors® in this state is that move will hopefully cause more expensive homes to sell.
While we’re thrilled to see the improved sales in September, it’s very clear that average sales prices have dropped. The average sales price in Arkansas in September was $141,193 – down 5.07 percent from $148,737 a year ago.
One of the reasons for the drop in the average sales price has to do with the tax credit. First-time buyers tend to shop for homes costing around $150,000 or less. The average sales price, then, does reflect increased activity among those buyers.
Realtors® in Arkansas have said for some time that we’ll know markets are recovering when we see more “move up” buyers – people selling their houses and purchasing more expensive ones.
The expanded tax credit may be just the thing to encourage those folks to get in the market. Hopefully, any recovery will continue past the time the tax credit has expired and we can soon talk about improved market conditions.
For housing market reports, details on the new home buyer tax credit and more, visit the ARA blog at www.ArkansasRealtors.com/blog.
Insane bargains? Not really…
For the past couple of years, we’ve heard about homeowners who are so desperate that they’ll accept ridiculous offers just so they can sell their houses and get rid of them.
That notion has caused some buyers to believe they’ve got a good chance of finding that “perfect home” and getting it for a bargain. While that tactic may work in some depressed markets around the country, that’s certainly not the case here in Arkansas.
Apparently, that’s not the case in most housing markets in the United States.
Realtors® here in the Natural State have mentioned that homeowners are generally receiving about 98 percent of their asking price when they sell their houses. That’s more or less in line with what’s happening in most markets around the country.
According to Zillow.com, buyers throughout the nation negotiated a median 2.7 percent off the listing prices when purchasing homes in October. That amount is down from a median of 2.9 percent in September and October marked the ninth month in which discounts to buyers shrank.
In other words, getting a house for the price of a song is uncommon throughout the United States. There are some markets, of course, where desperate sellers are willing to unload their homes for very low prices, but those markets are few and far between.
That’s not to say that prospective buyers aren’t in a good position in Arkansas – or most markets – right now. On Dec. 7, the average list price in central Arkansas, the Fort Smith/Van Buren area, the Jonesboro Area and northwest Arkansas was $221,477 – down about $5,000 from a month ago and $2,000 from a year ago. Furthermore, Dec. 7 marked the ninth week in a row in which average list prices had fallen.
Realtors® throughout Arkansas have said that buyers and sellers are taking a more realistic approach to negotiating real estate transactions these days. Sellers are getting better at pricing in accordance with fair market value rather than listing their homes for what they think those houses should be worth. Buyers, meanwhile, are learning that there is room for negotiation but homeowners aren’t willing to give their houses away for considerably less than what they are worth.
More good news for buyers is that interest rates are still below 5 percent for a 30-year, fixed-rate mortgage and qualified first-time buyers and existing homeowners can take advantage of a healthy tax credit if they get a house under contract by April 30.
There’s some good news for sellers, too. On Dec. 7 there were 11,717 homes in inventory in the four markets mentioned above – down substantially from the 12,933 homes for sale a year ago.
Should those declines in inventory decline further, it’s likely that prices will stabilize and eventually rise again.
Regardless, the current market offers a lot of advantages to buyers. While there are few insanely great deals available outside of the short sale and foreclosure markets, there are some very good prices available now and buyers do have some room to negotiate.
Avoid credit repair scams
Over the past couple of years, bankers have tightened the lending requirements for taking out mortgages.
A good credit score is very important for anyone wanting to purchase home and it’s about to get even more critical – Federal Housing Administration (FHA) officials have indicated they are likely to tighten lending requirements. FHA loans are the ones that people with spotty credit histories are most likely to get and that federal agency is looking hard at raising minimum credit scores.
It seems that every time you have a major change having to do with credit, people get hit with a fresh round of scams perpetrated by ne’er-do-wells wanting to make a quick buck and offer little in return. It’s worth mentioning that there are some very good groups out there that can help people clean up their credit through hard work and sticking to a budget.
Credit Counseling of Arkansas – located on the Internet at CCOACares.com – is one of those groups that is reputable and has helped people get their debt and spending under control. What about companies claiming they can repair damaged credit?
Arkansas Attorney General Dustin McDaniel advises caution when approaching those organizations. While there are certainly reputable companies that help people with bad credit, McDaniel – in a consumer bulletin – said to be wary of companies that make claims that appear almost too good to be true.
Companies billing themselves as credit repair companies and promise to “erase bad credit” or provide a “fast and easy way to get rid of bad credit history” often promise much more than they can deliver. Often, they’ll charge anywhere from $50 to $1,000 to fix a credit report.
Consumers sending in that money will, often, find the rascals that took that cash have done nothing or very little to fix credit, McDaniel said.
How can you protect yourself? McDaniel advises getting in touch with the Attorney General’s office or the Better Business Bureau to check up on credit repair companies before sending them a dime. He points out that an important rule of thumb to follow is that there are no easy and quick ways to repair credit – that process takes time.
Also, McDaniel warns against companies that want money up front to repair your credit.
McDaniel’s office says credit protection services – agencies that charge consumers for credit reporting information that is often available for free – are to be approached with caution.
It’s worth mentioning that any consumer can pull a free credit report every year from AnnualCreditReport.com. Through that site, people can pull reports from Equifax, Experian and TransUnion – the three major credit reporting bureaus in the country – once every 12 months.
You’ll not get a credit score through those reports, but you’ll at least be able to see what is on your credit report and take any appropriate actions to correct false or outdated information listed on them.
With banks tightening lending requirements, a good credit history is very important. If you need to take steps to improve your credit report, make sure you take the right ones and go with reputable companies.
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The Haitian people had nothing even before this happened, but I will always remember walking through the streets with smiling faces greeting us & letting us know they were thankful we were there. Now I wonder if those smiles have been taken away because of no hope. If you want to help, the link for HIM is http://www.hosean.org
