Our discussion on economic fault lines will now cover the housing market.
During the first quarter, the housing market showed signs of improvement, thanks to government assistance like the $8,000 first-time-homebuyer tax credit and the Federal Reserve's purchase of more than $1 trillion in mortgages. Now that those programs have come to an end, what will happen to the housing market?
Already we have seen a drop in construction. Last month, home construction dropped 10%, to the lowest level since December. Applications for new building permits, an indicator for future activity, have also fallen to the lowest level in a year.
Foreclosures are still on the rise. A record 14.7% of mortgage loans in the 1st quarter were either delinquent or in foreclosure. Which means that people are still struggling to make payments. Locally we had 300 homes placed in foreclosure in Winnebago County last month, which puts us on pace for a yearly record, if this trend continues. Let's hope that this is a short-term trend.
We have entered into a difficult cycle where we need jobs to spend money, pay bills, and buy houses. With the job outlook being bleak, it may be some time before we turn around. It could take years before we see a turn in housing. However, the good news is that real estate is as cheap as it has been in years! Who would have ever thought that real estate which increased in value for 40 consecutive years would drop in value for now 3 years in a row?
In February, Obama signed into law the first-time home buyer tax credit. Here are six things you need to know if you already bought a house or are thinking about buying one in 2009:
- A first-time home buyer doesn't necessarily mean someone who's never owned a house before. It means someone who hasn't owned a principal residence for three years before buying a house. If you've owned a vacation home, but not a principal residence within the past three years, you would still qualify for the credit.
- The tax credit is equivalent to 10 percent of the purchase price of the home up to $8,000. And, unlike the tax credit of 2008, this one does not need to be paid back.
- The home must be purchased on or after January 1 and before December 1, 2009. Anyone who bought a house last year will not be eligible.
- The tax credit is subject to income limitations. Single buyers need to make $75,000 or less to qualify for the full credit, that's $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.
- The tax credit is refundable. That means buyers can take advantage of it even if they don't have much tax liability. When filing out their tax return next year, whatever the buyer owes will be deducted from the credit and the balance will be sent to the taxpayer in the form of a check.
- Buyers must own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government.
Also something good to note: participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required, and no pre-approval is necessary.