Tag Archives: First Time Home Buyer Tax Credit

Seasonality of the SW Florida Real Estate Market

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You’ve heard the expression Tis the Season, and in real estate season can mean many different things depending on where you live, and what type of product you’re referring to.  Let’s talk about the Seasonality of the SW Florida Real Estate Market. For many years in SW Florida condo sales were highly dependent on seasonal sales, and in many tour developments that is still true.  However, even with condos there are differences.  Some condos are located at the beach; some can be rented weekly Vs monthly, and so on.  There are only a few golden rules in real estate; Location, Location, Location, and Price.  If you over price a home in this market, chances are good it will not sell, and we all know location makes a difference, although some would argue it’s still a function of Price.  The better the location, the better the price, but that’s the old chicken and egg theory we’ll stay away from today.

Today we thought we’d illustrate some seasonal trends in single family home sales throughout the years. For many years we’ve told people single family home sales traditionally peak in the summer months, perhaps because kids are out of school and that’s when the relocations tend to take place, and perhaps that many of our buyers over the years were move-up buyers and they had more time to look after the Season their business just had.  For years we didn’t have large companies employing hundreds or thousands of people, so many of our buyers worked for or owned small business, and they were busier in Season than out of season.

 

Seasonality of the SW Florida Real Estate Market
Monthly Sales Graph since 2005 Showing Seasonality of SW Florida Real Estate Market

We have attracted a few large employers, although a few more would be welcomed by all here I think.  Our market has been in turmoil since 2005, so we weren’t sure the charts would show the traditional rule of thumb that home sales tend to peak March through end of summer.  Upon further study of the home sales graph, it does seem to hold true even in this time of change that home sales peak in the March through Summer time frame, and as we enter the fall one might expect home sales could decline.

This year may or may not be like recent past years as we have a first time home buyer tax credit in play that expires November 30, artificially low interest rates as the government has been buying treasuries at least through October, and artificially low property values due to the distressed nature of the market.  Put all this together and you’ve got a Perfect Storm for record sales, and we’ve seen that for the past year.

So what could speed this train up or slow it down going forward?  In a few weeks interest rates could head up if the government doesn’t decide to keep them lower.  If so, rates could shoot up over 6% almost overnight like it did a few months ago last time their decision was about to expire.  Additionally, the first time home buyer tax credit could go away, thus taking some motivation out of new buyers in the market.  How the public reacts to the overall economy, health plans, stimulus money, bailouts, etc. could also affect public confidence about the direction the country is headed, and affect purchasing decisions.  All these could slow the train down.

The train could also gain momentum if the government enacted a tax credit for all buyers, not just first-time home buyers.  Nationwide we’ve been lacking the move-up buyer, and that’s certainly true here as well.  A tax credit for everyone would spur a recovery in the overall market, and may decrease pressure on banks.  As tax payers we either spend it here or spend it there, however if we help save the banks and spur home sales we also help the economy and increase jobs at the same time.  It would also help if the government keeps interest rates low by buying treasuries allowing the market more time to heal itself.

A reform of the newly enacted (May 1) appraisal rules would also help the market, as new rules intended to help have actually hurt, and have not increased quality of many appraisals.  We would argue the new government program has increased costs, increased inefficiencies, and spurred out of town appraisers who don’t know the market’s intricacies, but what would you expect when you put the US government in charge of local property valuation rules?

Some banks are getting better at evaluating and approving short sales when they make sense and some have gotten worse.  How banks make decisions today will affect future foreclosure inventory.  We believe foreclosures coming to the market may increase in the next year, which will help sales because inventory has been shrinking, and this will bring more affordable housing to the market to replace dwindling inventory.  We don’t see rapid price increases on the horizon until we see job growth, and even though we have artificially low sales prices, we are seeing sales because they are bargains.  I’m not sure we’d see anywhere near the sales volume if these bargains went up significantly in price overnight, and this is why I don’t think prices will jump dramatically when inventory contracts until the overall economy heals with the housing market.  And this is why we are in favor of a home buyer tax credit for all, so we can heal both simultaneously.

Lee County Single Family Home Sales Sold at Record Pace in 1st Qtr 2009

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Lee County single family home sales sold at a record pace for the 1st quarter of 2009, eclipsing the 1st Qtr of 2005.  This follows the 4th Qtr of 2008 which was the second highest quarter on record, taking a backseat to you guessed it, 2005.

Lee County Single Family Home Sales by Quarter
Lee County Single Family Home Sales by Quarter

For Larger Version, click here.

The bubble burst of years past has actually helped make homes affordable again, and combining that with a $8,000 first time home buyer tax credit in effect until Dec 1, 2009 and low interest rates, and median prices as low as 1997 prices, you’ve got a perfect storm again for dramatically increased home sales.  We believe 2nd Qtr home sales in Lee County will again be very strong, however home sales could slow later in 2009, but not for the reasons you might imagine.

Yes, interest rates have been climbing almost as fast as the price of oil, and both can negatively impact home sales.  The real reason home sales may decline in the 2nd half of 2009 may be that inventory is drying up.  In the coming weeks we’ll present some inventory graphs that will illustrate exactly what is happening with inventory. You would think that as inventory declines, prices would go up, and that is typical in a real estate cycle.  I think this cycle could be different.  For years, buyers have been conditioned that prices are going down and to wait for the bargains.  Buyers are just now getting the word that the bargains are disappearing and many are fighting with other home buyers to get the few bargains available.  Some buyers however, haven’t gotten the memo, and are still making offers at or below asking price, and they wonder why they’re missing out on house after house.  They’re not properly educated on what is actually happening in real time.

Jobs are not growing yet in SW Florida.  Right now we have investors coming in and scooping up the bargains and competing with home buyers because sales prices are so far below replacement cost builders can’t afford to build.  These prices are an anomaly and will not stay at these low prices forever.  This all leads me back to why I believe home sales could stagnate in the 2nd half if lenders don’t keep the foreclosure pipeline streaming.

There are two schools of thought on where prices are headed.  First is the old Supply Vs. Demand theory, that as inventory levels drop and buyers feverishly buy, prices automatically will go up.  In fact, we are seeing evidence of this occurring in certain segments, particularly waterfront and entry level Cape Coral homes.  Prices have bounced off the bottom and have been on their way up since last year.

The other school, and this theory is just my own and not economically tested, is that prices are so far below replacement cost, buyers have become conditioned to buy so long as it’s a bargain.  What happens when the bargains are gone and prices begin rising?  Will buyers buy in fear of prices tomorrow being higher than prices today?  Something tells me sellers will be staring down the buyers with a “gotcha” type mentality because sellers have taken it on the chin for so long.  Buyers may look at the sellers and say “You don’t have me, I’ll just sit back and do nothing now that it’s no longer a Deal.”  And hence the stare down begins, and the question becomes, who blinks and how long does it take?  We saw some evidence of this after Hurricane Andrew on the East coast.  Transactions slowed as buyers faced with diminished inventory couldn’t accept right away the new pricing the market brought to bear, and the stare down game began.

We do have some foreclosures backlogged in the system, and we’re going to need them to be released.  They all have to sell anyway, and the longer they sit vacant the more the properties deteriorate from lack of maintenance, storms, water damage, vandalism, etc. This leads to additional costs on repairing damages. Nothing good can happen with a vacant foreclosed home in a neighborhood, so the process of foreclosure and getting a new end user in actually helps the healing process of the market, and until we complete this process our market will not be healed.

Ultimately the wild cards are how many foreclosures will come to the market, and when will employment in SW Florida rise.  Pricing will most likely follow both events, and to some extent interest rates.  Interest rate increases cut into the buying power of buyers, and many first time home buyers are tight.  The other factor will probably be public perception of the overall economy and how people feel about their job and their overall financial situation.  The market’s ability to assess and discern what is truly happening in the real estate market, without all the fluff, will go a long way to determining when prices will start rising again and how quickly.

So the SW Florida real estate market is currently setting sales records.  In the coming weeks we’ll do our best to break down by segment exactly what is happening in our market and what it could mean going forward.

May 2009 Ellis Team SW Florida Real Estate Current Market Index

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May 2009 Ellis Team SW Florida Real Estate Current Market Index
May 2009 Ellis Team SW Florida Real Estate Current Market Index

 

The Ellis Team May 2009 SW Florida Real Estate Current Market Index shows relative stability.  We switched the way we compile the data for this report, and it looks like the index held steady at 3.99, up slightly from 3.72 the month prior.  All signs point to big sales ini April once they are released.  We are tracking over 1,400 single family home sales in April, which far exceeds sales from last year.

In the coming days we will be releasing a Fort Myers-Cape Coral inventory chart which will show available inventory in just those areas, as well as pending sales activity.  Lee County overall single family inventory stands at 12,579 which is up slightly from last months number of 12,356.  Again, we switched data compilation sources and we now feel we’ll pick up a few extra listings by making the change, so it’s possible inventory didn’t really increase at all.

First time home buyers hoping to take advantage of the $8,000 tax credit are competing with investors trying to scoop up bank foreclosure bargains.  Pending sales currently are running high, and might even be higher if we weren’t running out of foreclosure inventory.  The lack of foreclosure inventory may lead to reduced sales going forward if foreclosures do not pick back up again soon.  Some think the banks will be taking possession of more foreclosures soon as they work through the process, but less are being filed each month.

SW Florida Real Estate Sales Sets Record in March 2009

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Single family home sales in Fort Myers and Cape Coral MSA were up 192% in March 2009 over March 2008.  The Fort Myers and Cape Coral MSA encompasses Lee County Florida. Home sales totalled 1,464 this year as compared to 501 last year.  Statewide sales were up 30% and median prices were down 30% from last year.  Fort Myers and Cape Coral is definitley leading the state in transaction increases.  Miami was next in line with a 101% increase in sales transactions.  For a complete chart of transactions by city and median prices, check out Florida Sales Report March 2009 Existing Single Family Homes. We’ve included a chart that shows home sales from 2005-2009 in SW Florida.

As you can see from our SW Florida Real Estate Sale Prices 2005-2009, sales prices are nothing like what they were in years past.  Prices declined 9.23% last month alone largely due to increased numbers of foreclosures selling in the lower price ranges, as you can see from our Month Over Month Sales Prices Chart.

Condo prices in Fort Myers and Cape Coral were down 36% from last year to a median price of $126,200, down from $196,400 last year.  Sales were up 53% this year as buyers reacted to the tremendous bargains in the market.  Many buyers have sensed the market has or is close to bottom and they better act soon.  See Condo Florida Sales Report.

Buyers have also responded to the $8,000 tax credit that essentially gives first time home buyers, or anyone who has not owned a home that was their primary residence in the last 3 years, a tax credit of 10% of sale price up to a limit of $8,000  Essentially the government is making the down payment for buyers, and buyers who put less than 10% down pocket the difference.  There are some income requirements.  See First-Time Home Buyer Tax Credit-What You Need to Know or watch our video explaining the First Time Home Buyer Tax Credit.

NBC  Nightly News recently did a report “Is Now the Time To Buy a Home” which can be fouond directly on our webpage.  there are some particularly good deal deals in Fort Myers real estate right now as pointed out in the NBC Report.

First-Time Home Buyer Tax Credit-What You Need to Know

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Here is an information sheet we found on the First Time Honme Buyer Tax Credit for home buyers in 2009.  Buyers in Cape Coral and Fort Myers have been buying real estate in March at a record rate, and many will be helped by this tax credit.  For some, the government will essentially be kicking in 10% of the purchase price.  Read below for details.  Always call the Ellis Team at RE/MAX Realty Group with your questions, or visit our website Topagent.com

 First-Time Home Buyer Tax Credit

Frequently Asked Questions About the Home Buyer Tax Credit

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to for

qualified first-time home buyers purchasing a principal residence on or after january 1. 2009 and before

December 1. 2009.

The following questions and answers provide basic information about the tax credit. If you have more

specific questions. we strongly encourage you to consult a qualified tax advisor or

about your unique situation.

1.     Who is eligible to claim the tax credit?

First~time home buyers purchasing any kind of home-new or resale-are eligible for the tax credit. To

qualify for the tax credit, more about which you can find if you look here, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner with the help of property conveyancing services. 

2.     What is the definition of a first-time home buyer?

The law defines “first~time home buyer” as a buyer who has not owned a principal residence during the

three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first~time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first~time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a

buyer as a first-time home buyer.

1                     How is the amount of the tax credit determined? The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

2                     Are there any income limits for claiming the tax credit? Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGis between these amounts.

3                     What is “modified adjusted gross income”? Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine

 

“adjusted gross income” or AGio AGI is total income for a year minus certain deductions (known as

“adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or

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personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI

includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign

income, foreign~housing deductions, student~loan deductions, IRA-contribution deductions and deductions for higher-education costs.

6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit? Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

7. Can you give me an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $160,000.

The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this

amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0,

the result ;s 0.5. To determine the amount of the partial first-time home buyer tax credit that is available

to this couple, mUltiply $8,000 by 0.5. The result is $4,000.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of

$88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Please remember that these examples are intended to provide a general idea of how the tax credit might

be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? The most significant difference is that this tax credit does not have to be repaid. Because it had to be

repaid, the previous “credit” was essentially an interest~free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face

recapture of the tax credit amount. Certain exceptions apply.

9. How do I claim the tax credit? Do I need to complete a form or application?

Participating in the tax credit program is easy. You claim the tax credit on your federal income tax

return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount,

and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre~approval is necessary. However, you will want to be sure that you qualify for

the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit

on Form 5405 for an intended purchase for some future date; it must be a completed purchase.

10. What types of homes will qualify for the tax credit? Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of prinCipal residence is identical to the one used to determine whether you may qualify for the $250,000 I $500,000 capital gain tax exclusion for principal residences.

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11. I read that the tax credit is “refundable.” What does that mean? The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government

sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax

liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

12. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead? Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should

consult with a tax advisor to ensure you file this return properly.

13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit? Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the

home owner is treated by the tax code as having been “purchased” on the date the owner first occupies

the house. In this situation, the date offirst occupancy must be on or after January 1, 2009 and before

December 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is

determined by the settlement date.

14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program? Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB

program.

15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit? No. You can claim only one.

16. I am not a U.S. citizen. Can I claim the tax credit? Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

17. Is a tax credit the same as a tax deduction? No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume

the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an

$8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or

lowered from $8,000 to $6,800.

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18. I bought a home in 2008. Do I qualify for this credit? No, bullf you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit

19. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return? Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their Income lax withholding. Reducing tax withholding (up to Ihe amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied 10 the down payment.

 

Buyers should adjust their withholding amount on their W-4 via their employer or through Iheir quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note Ihat if income tax withholding Is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of

income tax and possible interest charges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the

tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance

agencies, such as the Missouri Housing Development Commission, have introduced programs that provide shortRterm credit acceleration loans that may be used to fund a downpayment. Prospective

home buyers should inquire with their state housing finance agency to determine the availability of such

a program in their community_

The National Council of State Housing Agencies (NCSHA) has compiled list of such programs, which can be found here.

20. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return? Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim It on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult

with a tax professional to determine how to arrange this.

21. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest? Yes, If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.