Mike's Blog

Homebuyers get a bonus in the stimulus bill

First time buyers could receive a $7,500 tax credit if they purchase soon.

NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.

Among its many provisions is a $7,500 tax credit for first time home buyers. The House passed the $819 billion stimulus plan, including this tax credit, in a vote late Wednesday. The Senate may vote on its version of the bill some time next week.

Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn't need to be repaid.

Many in the housing industry believe this credit could do a lot to jump start the moribund housing market.

"Our economists have studied the effect [of the credit] and they say there could be a 10% increase in home sales if it's implemented," said Mary Trupo, a spokeswoman for the National Association of Realtors. "It gives people who are sitting on the fence or who have inadequate funds for closing costs an incentive to act now."

A 10% increase would yield an extra half million sales this year.

Who qualifies

To be eligible, buyers cannot have owned a home for the past three years, and the new home has to be used as a primary residence. The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.

Applying for it is easy, or at least as easy as doing your income taxes. Just claim it on your return. That's it. No other forms or papers have to be filed.

Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don't sell for at least 36 months, they keep the money.

And the credit is refundable, meaning that it can be claimed even if the amount of the credit earned exceeds the buyer's tax liability. So even if your total tax bill comes to just $5,000, you can still qualify for a full $7,500 refund.

The housing industry has been pushing this idea for many months, arguing that first-time homebuyers are the key to boosting home sales. First time buyers who purchase from existing homeowners free those sellers to trade up to bigger, better houses.

Buyers beware

But the credit has its drawbacks, according to Bob Williams, a spokesman for the Tax Policy Center, which gave it a mediocre C+ grade in its Tax Stimulus Report Card.

Williams argues that the credit is poorly targeted because it goes to every first-time buyer, not just the ones who wouldn't buy without it. So, it merely provides a windfall for many people who would have purchased anyway. (See correction, below).

And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that's holding most buyers back - the suspicion that prices are going to keep falling.

"As long as people are uncertain about what markets are going to do, this won't help much," said Williams. "It's not enough to change that."

The industry would like to make the tax credit stronger by making it available to all homebuyers, not just first-timers. And it's pushing to have the credit last through the end of the year, at least.

"By the time it's implemented," said Trupo, "there could be very few months left to act."

NEW YORK (CNNMoney.com) -- The real estate market is so awful that buyers are now scooping up homes for as little as $1,000.

There are 18 listings in Flint, Mich., for under $3,000, according to Realtor.com. There are 22 in Indianapolis, 46 in Cleveland and a whopping 709 in Detroit. All of these communities have been hit hard by foreclosures, and most of these homes are being sold by the lenders that repossessed them.

"Foreclosures have turned banks into property management companies," said Heather Fernandez, a spokeswoman for Trulia.com, the real estate Web site. "And it's often cheaper for them to give these homes away rather than try to get market value for them."

In Detroit for instance, Century 21 Villa owner Randy Eissa has a three-bedroom, one-bath bungalow of about 1,000 square feet listed at just $500. It's a nice place with lots of light, but it needs a total rehabilitation inside, which Eissa estimates will cost between $15,000 and $20,000. But that's not bad, considering that the home last sold for $72,000 in late 2007, according to Zillow.com.

With prices this low, lenders aren't looking to make any money on these deals. They just want to get these houses off their books, so they don't have to bear the cost of maintaining them and paying property taxes.

In fact, the $500, $1,000 or $3,000 that a buyer forks over often goes straight to the real estate brokers as a commission. And often the lenders have to kick in extra cash to make it worthwhile for a realtor even take the listings, according to Eissa.

"Usually these homes are bank repossessions that the lenders have already tried to sell on the market, perhaps then put up for auction without success and then re-listed," he said.

These houses are almost always small fixer-uppers. Wiring, plumbing and heating systems have to be replaced, walls and ceilings sheet-rocked, plumbing and light fixtures installed and new kitchen cabinets and counters put in. Few come with working appliances.

Often buyers are legally required to rehab these homes to bring them up to code. In Detroit, buyers are required to sign Affidavits of Compliance Responsibility, which obligates them to make repairs outlined in an inspection report. Only after that can a certificate of occupancy will be issued, which makes the house legal to live in.

But even factoring in these costs, they're still bargains.

And as the housing crisis drags on, there are more and more four-figure listings popping up, as lenders try to unload their repossessed properties.

Cleveland is another city with many incredibly inexpensive homes. On Ardenall Avenue, in East Cleveland, McMullen Realty has a listing for a four-bedroom, one-and-a-half bath house for $1,900. It's been vandalized inside, but the outside is in good shape.

It features a deep front porch with Doric columns, double dormer windows and a separate garage. It's an excellent opportunity, according to agent Tonya Stoudamire. The last time it sold was in March of 2008 when it went for $16,677, according to Zillow.

"East Cleveland has a beautiful housing stock," she said. "These houses just need someone to come in and love them a little."

Another property for sale in Birmingham Ala. is priced at $1,900. The one-bedroom, one bathroom home was built in 1923 and has major fire damage, according to its listing broker, Tom Murphy Realty. The listing states that "Rooms are hard to distinguish."

But it's on a nice-sized lot, about 0.38 acre, close to downtown and transportation and has all utilities. Nearby, comparable homes in good condition sell for about $100,000, according to Zillow.

Most of these $1,000 homes can be renovated relatively inexpensively, and buyers can actually get government help to finance these repairs. The U.S. Department of Housing and Urban Development (HUD) has a special loan program for just such purchases.

Its rehabilitation mortgage insurance, available through FHA-approved lenders, was designed to encourage banks to issue a single, long-term loan to buyers that covers both the acquisition and rehabilitation of a property, according to HUD spokesman Brian Sullivan.

He adds that there may also be grant money available from the $4 billion Neighborhood Stabilization Program, which was a part of the massive housing rescue bill passed by Congress in July, to assist buyers with grants for down payments.

Buying homes like these is certainly a leap of faith; they're generally not in the best of neighborhoods and they're often surrounded by many other vacant and deteriorating homes. Still, some of these neighborhoods may turn around and provide residents with good, dirt-cheap housing.

"It's a sad time," said Stoudamire. "But it's also a time of opportunity, especially for low and moderate income people." 

From Keloland.com on 12/15/08

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Visit GoFreeCredit.com to check your credit report and start improving your credit score today

By Scott Carlson, Argus Leader December 10th 2008

Wisconsin-based Kohl's this week applied to Sioux Falls' building department for permits to erect a $4.3 million store that would be part of the Shoppes at Dawley Farms retail center on the city's east side.

According to the retailer's building plans, the new store would be 93,970 square feet. Ron Bell, Sioux Falls chief building official, said he expects his department to issue permits for the Kohl's store within the next four to six weeks.

Besides Kohl's, the Dawley Farm development also will include a 135,000 square-foot Target store.

Road graders have began moving earth for the Target and Kohl's stores. An official groundbreaking was held last month. Both retailers are expected to complete construction for openings next fall, according to Craig Lloyd, of Lloyd-Rickert Development. The entire Dawley retail center could top more than 500,000 square feet. http://argusleader.com

By Scott Carlson

(Published in the Argus Leader Newspaper,  Sioux Falls, SD - 02/15/08)

Bucking the U.S. housing slump, South Dakota emerged as the only state in the nation to post rising sales of existing homes in the last quarter of 2007.

Sales of existing homes increased 8.9 percent in South Dakota from October through December compared with the same period a year earlier, the National Association of Realtors reported Thursday.

In contrast, the Realtors trade group noted that home sales in 45 other states fell, with more than half posting double-digit declines. Sales were unchanged in North Dakota, while complete sales figures were not available for Idaho, Indiana and New Hampshire.

That news didn't surprise local economists or real estate professionals, who noted that Sioux Falls' economy remains strong.

"We are not participating in the housing bust," said Randall Stuefen, an economist in Vermillion. "Our (housing) prices did not run up, as in other areas of the country, and they are not collapsing now. The (housing) sales have been constant. It doesn't appear the sky is falling."

Stuefen predicted the Sioux Falls housing market might show some softness compared with its best boom years. But overall, Sioux Falls housing should remain strong unless there are additional shocks to the national economy, he said.

Meanwhile in the real estate trenches, one Sioux Falls executive is expecting brisk business this year.

"I think we are going to continue to flourish and see the economy rise and the housing market do well, particularly if interest rates continue to remain low," said Liz Lloyd, vice president of residential real estate at Lloyd Cos.

Lloyd noted that business in all areas of her company is up for the first two months of 2008 compared with the same period last year.

Last month, the Realtor Association of the Sioux Empire reported that homes sales declined slightly for a second consecutive year in 2007 but that the median home price rose 5 percent.

In its latest survey, the National Association of Realtors also reported that 73 of 150 U.S. metro areas showed an increase in median single-family home prices from a year earlier.

Sioux Falls was among the gainers, with its median home sale price rising from $138,000 in 2006 to $144,500 in 2007.

"The healthiest housing markets today generally are moderately priced and are experiencing job growth and often population growth, which in turn is supporting strong price growth," said Lawrence Yun, chief economist for the National Association of Realtors.

Lloyd said that definitely is the case in Sioux Falls. She noted that the community's financial services, health care industries and small businesses are continuing to grow.

Meanwhile, median home prices fell in more than half of the 150 metropolitan areas surveyed. Out of the 77 that posted declines, 16 showed double-digit percentage drops, according to the Realtors group.

Yun attributed the declines in median prices to mortgage market problems that mushroomed last fall, making loans more expensive for borrowers looking to take out "jumbo" mortgages larger than $417,000, the maximum size of mortgages that government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy and market as securities.

"The continuing crunch in the jumbo loan market that began in August has disproportionately reduced the number of transactions in higher price ranges," Yun said in a statement.

Nationwide, existing homes sold at an annual rate of 4.96 million units in the fourth quarter, down 21 percent from the sales pace of the third quarter in 2006, the Realtors group said.

Mortgage lenders, would-be homebuyers and Wall Street investors alike have been grappling throughout the past year with the effects of rising defaults, the result of lax lending standards that were prevalent during this decade's housing boom. As defaults have risen, lenders have grown more cautious, which has allowed fewer buyers to qualify for home loans.

The Associated Press contributed to this report. Reach reporter Scott Carlson at 331-2318