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?
Tomorrow is tax day. Are you prepared? Don't forget to file your tax return on time. The penalty for filing late is 5% interest on the amount you owe for each month that you don't file, up to 25%. If you know you won't be able to complete your return on time, file an extension. You'll be glad you did.
Another reason to file your taxes is the tax refund. The vast majority of filers are due refunds. According to early data from the IRS, almost 90% of returns processed so far have resulted in a refund. And the average refund for 2009 has reached $3,036, which is $266 higher than last year. This increase is partly due to new tax benefits enacted in 2009. Among these were, the first-time home buyer credit, sales tax deductions on new car purchases, credits for homeowners who made their homes more energy efficient, and the first $2,400 of unemployment benefits were tax free.
These larger refunds have increased the number of households that end up owing nothing in federal income taxes. According to estimates by the Tax Policy Center, roughly half of households, or 71 million, will not owe any federal income tax in 2009. These households include almost all that earn up to $30,000 as well as half of households that earn between $30,000 and $40,000.
The top 1% of households paid 39% of all individual income taxes. And the top-earning 25% paid more than four out of every five dollars collected by the federal income tax! Let's all pay our taxes and thanks for reading.
With 2009 coming to a close, and possibly, the Great Recession, running its course, let's look into our crystal ball and see what's coming in 2010. It has to be better than 2009!
If we look at what 50 of the top economists are saying, 2010 looks like we might be able to breathe a sigh of relief. Let's start with GDP, or the measure of goods and services in the country. Good news here! We are seeing positive numbers, which means further economic recovery. Not a huge recovery, but the numbers are positive. We saw a huge contraction in the fall of 2008 and the first 2 quarters of 2009. In 2010 we should see a slow recovery but at least it's movement in the right direction.
Their predictions, by the way, are also showing some relief this quarter. We are not looking at a rosy Christmas season but one at least as good as last years. Maybe Santa has been checking his list and at least it's not shorter than last years! Our economic forecasters see some hope here!
The housing tax credit will probably be extended and there may even be some credits for household appliances in an effort to jump start a very weak economy. Preliminary results for the $8,000 tax credit show that it is helping home sales. The real estate industry is only beginning to show some life.
That's GDP. Next week we will look at interest rates and even look at this behemoth of a problem, the banking crisis.
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.