You read our previous posts about the Palm Springs area real estate market demonstrating a significant uptick in sales and activity (supported by statistics, such as those above). We’ve also brought you insight into ”short sales”. Although slightly higher than recent months, Interest rates remain at historic lows. Check Current Rates and contact us for an intro to a mortgage broker. Inventory is diminished but still plentiful.
If you‘re not in the market for yourself, it‘s certainly a great time to help children or grandchildren to get into a new home. As a straight investment, if not a gift, it makes sense to recognize the appreciation that will likely outstrip the paltry interest rates currently available. Consider the following facts and please contact us for in-depth information on any of the benefits described below.
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Motivation (Does It Include Inflation?)
There is reason to believe that inflation is around the corner. Here’s my June 15th 2009 dialog with Dennis Torres, a licensed real estate broker who oversees Pepperdine University real estate strategies as director of real estate operations and is also an adjunct professor there:
Mr. Torres:
Thanks for your article in the June issue of Realtor magazine. I have a question. You seem to indicate that inflation is inevitable within two years (beginning when?) and that you expect housing prices to rise. Makes some sense. But then you go on to say that housing prices will remain stagnant for three to five years, possibly until 2015. How do you reconcile prices rising within two years and remaining stagnant? Please clarify.
Hi Steve,
Forecasting and predicting are an art not a science. In my case I am simply stating my educated guess as to what I “feel” about the market. For what ever it is worth, my “feel” or educated guess is based on my 39 years of active participation in the Southern California market.
To answer your question, I am trying to reconcile two market influences, the recovery of the housing market which I feel will stagnate for the next 3 to 5 years from 2009 and the coming inflation which will cause the value of homes to increase as the value (purchasing power) of the dollar decreases. The effects of inflation will gradually take hold over the next 2 years from 2009, but we will not really see these affects on the housing market until the housing market recovers e.g. until buyers return in mass, inflation or not housing prices will stagnate even though other durable goods reflect the rising inflation.
I hope this answers your question.
From SL: Thank you, Dennis. Of course I realize that this is a not a science. I appreciate your opinions. Your prediction of inflated home prices now makes given your caveat that the market still has to return first.
From DT: Here’s a PS for your blog: I strongly feel that over the next 20 years today, right now is the best time to purchase a primary residence provided the buyer is fairly confident about location and income for the next 7 years. While prices may continue to decline for the next 6 to 12 months depending on area, interest rates and incentive programs are optimal right now.
Federal Home Buyer Tax Credit Could Expand
A first-time home buyer tax credit of up to $8,000 has helped to move housing inventory during an otherwise sluggish real estate cycle. The 2009 First-Time Home Buyer Tax Credit can help prospective home buyers become part of the American dream.
First-time home buyers who purchase homes between January 1, 2009 and December 1, 2009 qualify as a “first-time home buyer” if they have not have owned a residence during the three years prior to the purchase. The Tax Credit applies to primary residences., including: single-family homes and condos.
The maximum allowable credit for home buyers is $8,000 with the credit equal to 10% of the purchase price of the home, up to $8,000. Single buyers with incomes up to $75,000 and married couples with incomes up to $150,000 may receive the maximum tax credit. Some buyers may still be eligible for the credit. The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income are not eligible for the credit. The buyer does not need to repay the tax credit, if they occupy the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped on the sale.
Now both legislators and the business community are hoping to build on the incentive’s success by expanding it. The campaign is also pushing Congress to make permanent expanded limits for loans eligible for government purchase or backing. The limit is now $729,750 in high-cost housing markets. Unlike current law, the proposed expanded tax credit would not be refundable. As a result, existing state-level bridge loan downpayment programs would be less available because the purchaser/taxpayer will not know his/her tax liability at the time of purchase. It is not known when this legislation might be considered, as both tax-writing committees are working solely on health reform.
A number of bills have been introduced in the House and the Senate that lobby for an expansion of the measure. Among the proposed changes:
1. Setting a new cap of $15,000.
2. Extending the tax break into mid-2010.
3. Making the benefit available to all home buyers, not just first-timers.
4. Offering a separate tax credit to $3,000 for borrowers who refinance
California running out of $10,000 Tax credits
First-time home buyers wanting to take advantage of the state’s $10,000 tax credit may have less time than originally expected. California set aside $100 million to help home buyers purchase newly built homes, hoping to jump start the residential-construction market. According to state officials, the tactic has worked well and is helping to entice home buyers into the market. However, there only is approximately 20 percent of the program’s funding remaining.
The credit is available on a first-come first-served basis and was supposed to last through March 2010. Almost any newly built home qualifies, as long as it’s an owner-occupied, principal residence on which property tax is paid. There is no cap on the home price or buyer’s income.
The credit reduces taxes dollar-for-dollar up to $3,333 a year for three years, or 5% of the purchase price of a home, whatever is less. Unlike the federal first-time homebuyers tax credit, which is $8,000 or 10% of the home price, whichever is less, the California credit is not refundable. That means the credit will only wipe out taxes up to the full amount paid or owed but no more.
For example, if the buyer’s tax bill came to $2,000 for the year, a buyer claiming the full $3,333 would owe nothing but couldn’t claim the extra $1,333 back from the state.
First-time, new-home buyers in California can claim both the federal credit and the state if they qualify. That could reduce taxes by $11,333 for the first year of ownership.
There is also one big change from the original offering: People buying homes under construction – not just those already finished – will qualify, which should help put projects back on track.
“It creates a reservation system that was absent in the first bill,” said Caballero. “Buyers only received a credit when they closed escrow. Now, they would get it with a signed contract.”
The program launched in March, and if all of the submitted applications are approved, only $17.5 million would remain in the fund. The California state legislature is considering adding another $200 million to the program. However, securing approval may be difficult due to the state’s estimated $24 billion budget deficit. A bill to extend the program already has won Assembly approval and now is awaiting activity in the state Senate.
HUD: Tax Credit Can Be Used on Closing Costs*
FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released in June.
Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.
The loans can’t be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning.
Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment.
There remain many sources of assistance for buyers needing help with the 3.5 percent downpayment, including many state and local government instrumentalities and nonprofit lenders.
In addition, some state housing finance agencies have developed their own tax credit bridge loan programs, so buyers in states whose HFAs offer such programs can monetize the tax credit upfront to cover all or part of their downpayment. These programs are separate from what HUD announced.
*HUD Bridge Loan programs for California cannot be confirmed at the time of this post. Obtain HFA’s phone number through a Housing Finance Agency list maintained by the National Council of State Housing Agencies (NCSHA). If you’re unable to identify a state or local HFA or other governmental agency or nonprofit to assist you, you can tap bridge-loan assistance if you work with a lender approved by the U.S. Department of Housing and Urban Development to originate FHA-backed loans. HUD maintains a database of FHA lenders on its Web site that’s searchable by a number of criteria including city, state, county, and service area. In a difference with the assistance provided by state and local agencies or nonprofits, the bridge loans provided by private, for-profit FHA-approved lenders must be structured in the form of a personal loan or line of credit collateralized by the tax credit. The bridge loan can’t be structured as a second mortgage.
Source of much of the above content: Robert Freedman, REALTOR® Magazine Online
