Archive for the 'Taxes' Category
Does End of Housing Credit Signal End of Sales Increases?
May 24th, 2010 categories: Economic Recovery, Housing Market, Real Estate News, Taxes
I was a big fan of the federal government’s first-time and move-up home buyers’ tax credits. The housing statistics bore me out, too: Both of these tax credits – up to $8,000 for first-time buyers and as much as $6,500 for move-up buyers – helped boost housing sales. This year, for instance, housing sales in Chicago continually rose. This isn’t all because of the tax credits, but they certainly helped.
Unfortunately, both tax credits expired at midnight on April 30. It’s been nearly a month, then, since their demise. How has the end of the tax credits impacted housing sales? It’s too early to tell definitively, but the Chicago Tribune last week reported on at least one grim omen that suggests that the demise of the credits might have a negative impact.
According to the story, the Mortgage Bankers Association reported that mortgage loan applications for the week ended May 14 fell 27 percent from the number of applications completed one week earlier. According to the bankers, applications for the week reached their lowest level in 13 years.
In even more disturbing news, the bankers reported that mortgage loan applications have dropped nearly 20 percent for the month of May.
The Tribune story also pointed to a report earlier last week from the U.S. Commerce Department. According to that story, while housing starts did rise in April – that’s good news – the number of building permits dropped 11.5 percent. That represents the lowest that number has stood since October of last year. This is significant because housing permits represent future activity.
Of course, you can’t blame all of these potentially negative signs on the end of the housing tax credits. A lot of people have bought homes in the last six months; maybe it’s time for a bit of a natural slowdown.
If I had my way, though, Congress would have extended both credits. The housing market’s recovery, both in Chicago and across the nation, is still a tentative one. Anything that can give it a boost, including the first-time and move-up-buyer tax credits, should be used as a tool to keep the housing recovery’s momentum going.
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The Cost of Waiting
April 7th, 2010 categories: Economic Recovery, FSBO's, For Buyers, For Homeowners, For Sellers, Housing Market, Mortgage Info, Taxes
This article was written by and provided courtesy of Michael Wallace, a Mortgage Banker from Chicago Bancorp.
First-time home buyers and move-up buyers must be under contract by April 30th in order to receive their respective $8000 and $6500 tax credits. A lot of people are taking advantage of this and it has stirred up a lot of activity, particularly in the first-time buyer category. Prices have dropped over the last few years, rates are at historic lows and the government wants to give buyers a big check. It’s a perfect scenario for buyers right? But there are still some people out there sitting on the fence and wondering if buying in the current economy and real estate market is a good idea. I’ve crunched the numbers on what I consider to be 6 likely scenarios.
The Cost of Waiting
Let’s look a pretty typical first-time buyer scenario. $250,000 condo purchase using the popular 3.5% down payment FHA 30 year fixed mortgage at 5.125%. The monthly mortgage payment would be $1314 per month, the down payment would be $8750 and Uncle Sam would be sending a check for $8000. Let’s also assume that the buyer remains in the home for 5 years.
What if #1 - 1 year from now real estate prices remain the same and mortgage rates remain the same
Cost of waiting = $8,000…no check from Uncle Sam.
What if #2 - 1 year from now real estate prices remain the same but mortgage rates are 1% higher
Cost of waiting = $17,120. The mortgage payment would be $1466 per month. Over 5 years this is an additional $9120 in payments and the $8000 check is missing.
What if #3 - 1 year from now real estate prices are 5% lower and mortgage rates are the same
Cost of waiting = $3603. The mortgage payment would be $1248. Over 5 years this saves $3960 in payments. The down payment is $438 less. But the missing $8000 still makes the cost of waiting an expensive decision.
What if #4 - 1 year from now real estate prices are 5% lower and mortgage rates are 1% higher
Cost of waiting = $12,302. Even with a smaller loan amount, the increase in rate would increase the monthly mortgage to $1393. Over 5 years this adds up to $4740 more in payments. The down payment would be reduced, but only by $438. Add in the loss of the $8000 and again the cost of waiting is not good.
What if #5 - 1 year from now real estate prices are 5% higher and mortgage rates are the same
Cost of waiting = $12,338. The loan amount would be larger resulting in a monthly payment of $1379. Over 5 years this adds to $3900 more in payments. The down payment is $438 higher and the $8000 is not in the picture.
What if #6 – 1 year from now real estate prices are 5% higher and mortgage rates are 1% higher
Cost of waiting = $21,938. The higher loan amount and higher interest rate result in a monthly payment of $1539. Over 5 years this adds up to $13,500 more in payments. Add the missing $8000 and the $438 more in down payment and this becomes quite costly.
Written by Michael Wallace 03/27/2010
Contact Michael Wallace
(312)738-6051
michaelw@chicagobancorp.com
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Another Deadline Looms for Home-Buying Credits
March 22nd, 2010 categories: Chicago Info/News, For Buyers, For Sellers, Housing Market, Taxes
The National Association of REALTORS® cites both the first-time and repeat-buyer federal housing tax credits as providing a big boost to the recovering housing market across the nation. I’ve seen the impact of the two credits here in Chicago, too; they’ve acted as the perfect incentive, along with housing prices that are more affordable than they have been in years, to inspire Chicago buyers to get off the sidelines and into the local housing market.
But now another deadline for the two credits is looming: Buyers have to act fast to take advantage of either credit. In fact, to qualify for either credit, buyers must have their housing contracts signed and accepted by April 30. Settlement must occur by June 30.
The Washington Times has a good summary of the credits and the deadline for buyers who want to take advantage of them. Basically, though, the first-time homebuyer version provides buyers with an $8,000 tax credit. The move-up buyer credit, for buyers who aren’t purchasing their first home, provides a $6,500 credit.
Both of these credits, though, might disappear after the deadline passes.
I think this is a shame. The housing industry, both in Chicago and across the nation, is still in the beginning stages of a steady but fragile recovery. The housing credits are helping to keep that recovery going. I don’t think the disappearance of the credits will break the industry’s momentum, but it might slow it. And that’s not good for anyone.
We all want our economy to continue is own fragile recovery, right? The health of the housing industry plays a big role in this. When home sales are on the rise, the economy’s health is generally better. Why, then, wouldn’t Congress extend the housing tax credits once again? Don’t we want to keep the recovery going?
If you want to purchase a home in Chicago and take advantage of either tax credit, the time to act is now. Finding a home, making an offer and settling the transaction is a process that takes a long time. If you’re to have any hope of qualifying for the credit, you have to kick your home search into high gear now.
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Can The Move-Up Buyer Tax Credit Help You?
November 19th, 2009 categories: Economic Recovery, For Buyers, For Homeowners, Housing Market, Mortgage Info, Real Estate News, Taxes
You probably read a lot earlier this month about the first-time homebuyer tax credit. That’s because Congress approved an extension of this important measure that provides first-time buyers an $8,000 tax credit when they purchase a house. Many in the real estate community, including myself, believe that that this tax credit has helped provide a significant boost to housing sales. That’s why we were so excited to learn that the credit wouldn’t expire at midnight on Nov. 30, as it was originally scheduled to do.
But amid all the press about the first-time buyer credit, you might have overlooked the significance of another housing measure that Congress also approved in early November: the so-called move-up buyer tax credit.
This tax credit provides $6,500 to anyone buying a new house who isn’t a first-time buyer. It’s another great financial incentive for homebuyers.
National real estate writer Kenneth Harney recently wrote an excellent column explaining this new housing credit. It’s a good summary of the credit.
Harney explains that the new credit, which took effect as soon as President Obama signed the bill creating it on Nov. 6, is available to homebuyers who have owned and lived in their current residences for a consecutive five out of the last eight years.
Your adjusted household income can’t exceed $125,000 if you file your taxes singly or $225,000 if you are married and filing jointly if you want to claim the entire tax credit. You might be able to qualify for a partial tax credit if your income is higher than those limits. But if your adjusted gross income is $145,000 and more and you are a single filer, you won’t qualify for any part of the credit. If you are married and filing jointly, you won’t get any credit if your modified adjusted gross income is $245,000 or more.
Harney also points out that the home you are purchasing can’t cost more than $800,000, and that it must become your main residence. However, you should be aware that you don’t have to sell your current house to qualify for the move-up buyer credit. You can keep that house and rent it out if you’d like. Just make sure, as Harney advises, to move out of your current home as soon as you close on your new house or condominium.
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First-Time Homebuyer Tax Credit Does Its Job In Chicago
November 18th, 2009 categories: Chicago Real Estate News, For Buyers, For Homeowners, For Sellers, Housing Market, Real Estate News, Taxes
I was happy earlier this month when Congress approved an extension of the $8,000 first-time homebuyer tax credit along with a new $6,500 credit for move-up buyers. That’s because the first-time homebuyer tax credit has worked, at least here in Chicago.
Chicago home sales have slowly, but steadily, risen during the second half of this year. That trend continued in the year’s third quarter, according to the Illinois Association of REALTORS®. The local trade group said that 5,821 homes sold in Chicago during the third quarter. That’s up 15 percent from the 4,947 homes that sold in the year’s second quarter in Chicago.
To me, this is proof that the federal tax credit has had a significant impact. And that impact hasn’t only been felt in Chicago. Total home sales across the country rose 11.4 percent in the third quarter when compared to the second quarter, according to the National Association of REALTORS®.
Now that the $8,000 tax credit has been extended, I expect even more first-time buyers to enter the Chicago housing market. Why not? Chicago has some great neighborhoods and amenities. And it’s blessed with a strong housing stock.
Housing here is more affordable than it has been in years. According to the Illinois Association of REALTORS®, the median sales price of an existing home – which includes single-family homes, condominiums and townhouses – stood at $230,000 in the third quarter of 2009. That’s down 20.7 percent from a figure of $290,000 in the third quarter of 2008.
If you’ve been waiting to purchase a condo or single-family home in Chicago now might be the perfect time to act. Home sales historically slow during the winter months. Sellers are often more willing to compromise on everything from prices to closing dates during this time of year.
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