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The Spring season has started! Following the 2009/2010 blizzards that hit the Mid-Atlantic region, buyers have come out with a vengeance. We’ve been processing a contract or listing a day in the office and there are no signs of stopping. As I reported last month, prices across the Northern Virginia (D.C. suburb) area have turned around. For December, the average sales price jumped 12 percent compared to December 2008.

Now, buyers and sellers alike are focusing on the Expanded Home Buyer Tax Credit passed by Congress Nov. 6, 2009. The expanded CREDIT (not deduction!) provides cash benefits to first-time buyers and to homeowners who are purchasing a second primary home.

First-time buyers are classified as purchasers who have not owned a home in the last three years; repeat buyers are those who have owned within three years or currently own a home and are moving into another home that will be their primary residence. For doing this, either person, if they qualify, can apply for tax credits (up to $6,500 for repeat buyers; $8,000 for first-time buyers).

These tax credits mean cash in the buyer’s pocket. The credit is applied to your tax bill as if you had actually paid it to Uncle Sam. Then it either comes back to you with a lower tax bill for the tax credit amount, or in the form of a check from the U.S. Treasury. The reason for these generous credits is that the federal government figures most home buyers will spend the money on the house – paint, carpet, windows, doors, appliances – thus creating product demand, and thus creating jobs.

The market is lining up to be a perfect storm for buyers and sellers in Northern Virginia:

  • price appreciation (the bottom of the market is passed);
  • historically low interest rates (in the 5% range);
  • tax credits to help fix up your home (up to $8,000).

So What? What does that mean to you? Here’s the catch – you must have a ratified contract by April 30, 2010 and settle on your new home by June 30, 2010. If you’ve been looking to buy a home before prices escalate, with cheap money and get back money from Uncle Sam – now is the time.

With all the stimulus packages being floated out there at costs of up to $5,000 per tax payer (per program), the question comes begging about the Homebuyer Tax Credit.

“At $8,000 for each first-time homebuyer and now $6,500 for move-up buyers – how much is that going to cost the American taxpayers?”

Good question. Not knowing how many people will be able to take advantage of it, we’ll have to start with some guestimates.

Keep in mind, first, that about 4.5 million existing home sold in 2008 altogether and we have been on track to sell roughly the same in 2009.

For 2009, the tax credit was  only for first-time buyers and up to $8,000 (10% of the sales price, not to exceed $8,000). So not everyone received the $8,000 if they purchased a house less than $80,000 – but let’s go ahead and say they did for argument sake.

If the stats hold true, and that is about half of all buyers are first-timers, then there were 2.25 million buyers that qualified (assuming they didn’t go beyond the income limits – which many did). But for simplicity, we’ll say they all qualified.

Simple math puts the tax credits at $18 billion for 2009 – that doesn’t have to be paid back. For all the money that’s being floated out there to stimulate the economy, this is probably the best plan in play.

Now, before all my conservative friends blow a vein behind their eyeballs that are now popping – here’s what happens when a homeowner purchases a house (vs., say when someone buys a car or some other depreciating asset). They spend money on it. Lots of money.

The foreclosures/short sales that have made up most of the market for the last 2 years are mostly in paltry condition and need paint, carpet, appliances, countertops, cabinets, windows, landscaping, rot replacement, sump pumps, mold remediation, heat pumps, etc.

Unless you saw these houses, you just wouldn’t understand. I’m not talking “updating” homes that would otherwise be in good living condition, but making them inhabitable altogether. In fact, regular home buyers like you and me can’t even finance many of these houses because of the condition they’re in.

People get into a tizzy about home flippers swooping in and making “all this money” by flipping a house. Let me tell you – without the flippers some of these houses would completely fall apart. Remember, that lenders WON’T LEND MONEY on a house without complete bathrooms, that are mold invested, lack certain appliances, etc. And the REO banks WON’T fix them up to sell them. They just let them deteriorate while they wait for a buyer.

Enter the investor/rehabber who purchases the house with either cash or off-line financing, then fixes it up to pristine condition, sells it at a fair price and moves on to the next project. They are providing a much-needed service to even make the houses salable, much less inhabitable.

Now, as the market turns around in city after city (that’s what the increase in  pending sales is all about across the country), we’ll see an increase in sales and a use of the home buyer tax credit to fix up the housing pool.

The tax credit for home buyers has played its role and now it will go away April 30, 2010. The question for consumers is will they recognize and act on a good deal when they see it?

Virginia Association of RealtorsHere are the basics:

How Much:

  • First Timers: Up to $8,000 (10% of home purchase) but not for anyone buying a house more than $800,000
  • Move Up Seller/Buyer: Up to $6,500

Who?

  • First Timers – meaning you haven’t held title on a property in the previous 3 years.
  • Move up sellers/buyers: who have lived in their homes five consecutive years.

Income Limit:

  • Adjusted gross income of $125,000 (single); or $225,000 (married filing jointly). The credit fades out from these incomes and is elminated for those making more than $145,000 (single); or $245,000 for married filers.

Check out this link from the Virginia Association of Realtors for more details: http://www.varealtor.com/Portals/0/docs/ConsumerInformation/EXTENDED_First-Time_Home_Buyer_Credit_09.pdf

I thought you would like to know this information about how the Stimulus Package will affect housing in our area. Frankly, it will tighten up an already tightening market in Northern Virginia. We have been experiencing low inventory and rising prices for the last 6 months west of the Potomac and see no end in sight. Sales are up more than 25% in Fairfax County (and nearly 100% in Prince William County) compared to a year ago. Nevertheless – the market is hot and the incentives below may create an even hotter sellers market as we move forward in 2009.

  • First-time buyers are back in the game (with 0% down financing and payments less than rent);
  • There’s now an $8,000 tax credit (with no payment back required!) for first timers;
  • Parents are helping kids purchase their first home;
  • Investors are picking up properties that create cash flow…

The challenge for many markets across the country where inventory is already starting to shrink and pending sales sour is whether the market will overheat once again.

Meanwhile, below you can see an overview of how the stimulus package will help homeowners stay in their homes

From the Weichert Insights newsletter:

“As you may know, President Obama presented a new plan this week to prevent foreclosures and stabilize the housing market. The Homeowner Affordability and Stability Plan will be funded with money from the $700 billion financial industry bailout passed by Congress in the fall.

“The plan was designed to help up to 9 million families avoid foreclosure by restructuring or refinancing their mortgages. While it may seem that the main benefactors of the initiative are homeowners at risk of defaulting on their mortgage, we will all benefit. Defaults and foreclosures result in lower home values, lost jobs and economic troubles for local communities.

“The main components of the Homeowner Affordability and Stability Plan are to:

Provide incentives for mortgage lenders and servicers to modify loans in a way that would reduce monthly mortgage payments to sustainable levels and aid up to 4 million homeowners struggling to make their payments.

Allow Fannie Mae and Freddie Mac to refinance mortgages they own or guarantee, even when more is owed on the home than what it is worth. By removing restrictions on the government-sponsored enterprises, monthly payments could become more affordable for up to 5 million homeowners.

Keep mortgage rates low for all buyers by doubling support for Fannie Mae and Freddie Mac, which were taken over by the government last year.

Said National Association of Realtors President Charles McMillan, “The administration’s proposed plan, combined with provisions like the $8,000 first-time buyer tax credit in the just-enacted American Recovery and Reinvestment Act, will help minimize foreclosures, shrink housing inventory, stabilize home values and move the country closer to an economic recovery.”

For a printable version of this message, click here.

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