Existing Home Sales Fall Unexpectedly

This is the headline currently on CNBC. And the headline says it all. Who would have thought 6 months ago that a fall in existing home sales at this point would be UNexpected?

You see, existing home sales have risen every month for the past 5 months. The government's $8,000 first time buyer tax credit threw gasoline on the fire of an already pent-up demand, and people have bought in droves in the past 5 months. Then, August sales figures come out and are down 2.7%.

Again, the headline says it all. A year ago, we thought the housing market would never stop declining, but now a small decline is actually a surprise. The talking heads are even saying the decline could be due to the fact that all the inventory under $250,000 is sold (to the first time buyers).

It seems a consensus opinion now that housing has bottomed. Your home has stopped going down in value! Enjoy this moment! What the 2.7% decline should remind us is what I've been saying all along...get ready for an UNDRAMATIC recovery.

There will be no V-shaped recovery in home prices. We may have hit bottom, but get ready to bounce along the bottom for longer than anyone thinks or wants. Home price appreciation will likely be subdued for the next 5 years or more, as we await a more full economic recovery that's only just begun, and don't forget that everything ABOVE $250,000 in housing is still challenged.

Yes, it will be long and undramatic. But I for one am pleased that my home has stopped depreciating. With a much-reduced risk of home price depreciation going forward, home ownership has again become a no-brainer good financial decision, regardless of how slowly the home appreciates in value, just for the tax benefits and for the joy of owning your home over renting one.

$8000 tax credit - more details

Now that all the details are out on the new home buyer tax credit, here are some more features not in my first post earlier:

-It's NOT JUST FOR 1ST TIME BUYERS. You an also take it if you have not owned a home just in the previous 3 years.
-It is indeed capped at 10% of the purchase price if the purchase price is below $80,000.
-If you make over the income limits, a partial benefit is available if you make between $75,000 and $95,000 (individual) or $150,000 and $170,000 (couple).
-This is only for owner-occupied primary residence homes. You can only have one primary residence at a time.
-If you use a bond money mortgage, you still qualify!
-You can't buy the home from a close relative.
-You can take the credit in either 2008 or 2009.

Here's a great summary sheet:
http://www2.cabr.org/files/HomebuyerTaxCredit.pdf

New First Time Buyer $8000 tax credit details

Don't have all the details yet, but here's what we know so far about the new tax credit for first time homebuyers.

-$8000 (up from last year's $7500 credit), and unlike last year's, this one does not need to be paid back!
-For purchases between January 1st and December 1st, 2009.
-Income limits are $75,000 for individual and $150,000 for couple.
-First time buyers only
-Principal residences only
-No disqualification for using Bond Money.
-If you sell the home in the first 3 years, you must repay it.

*I'm assuming the credit is capped at 10% of the property sale price or $8000, whichever is smaller, like last year's credit (so you can't buy a $10,000 property and get an $8000 tax credit).

More details to come, plus a piece on what I think this will do to the market.

I'd take Bond Money over the new Tax Credit any day

I'd take Bond Money over the new Tax Credit any day...

What? Let me explain and bring you up to speed.

Our government passed a new tax incentive for first time homebuyers as part of their new housing bill. Awesome! One of the first things they've done right to help the housing market correct! It's an odd tax rebate though. It's essentially a $7500 interest-free loan from the IRS that you pay back over 15 years. That's great if you want to improve the house you just bought. Great also if you just stick it in a money market account and let it earn interest while you pay it back. And not hard to pay back if you're the type that usually gets a tax refund every year.

One of the catches is you're not eligible if you finance your home with Bond programs such as the Ohio Bond Money program that's very popular right now. Folks who just completed their first purchase with this program may be bummed at first to find out they don't qualify for the tax "rebate." But actually, they are making out far better.

You see, as I understand it, Bond Money programs are a government initiative to encourage first time homebuyers (not too unlike this new rebate). But the key is, at the time I write this the interest rate on a Bond Money loan is a half of a percent lower than a regular FHA loan (which WOULD qualify for the rebate).

I would take a fixed interest rate that's 0.5% lower over a $7500 interest-free loan ANY DAY OF THE WEEK. This lowers your payments by hundreds if not thousands per year, depending on your loan amount. That's money in your pocket every year you own the home, and you don't have to repay it!

Here's a summary of the new tax rebate for first time homebuyers:
http://www2.cabr.org/files/homebuyer-tax-credit-Q&A7-29-08.pdf

Perhaps some loan officers from the blogger community will weigh in on whether I've nailed this or not...

All this said, there are income limits to the Ohio Bond Money program. So if you don't qualify for it and you are going to buy your first home, the tax rebate may be quite beneficial to you. I mean, where else can you borrow $7500 interest free?

The rebate program goes through October 2009. So guess what...it's time to buy!

Contact me if you have any questions, want to take advantage of historically low interest rates, or are ready to borrow the government's money interst-free!