California First Time Buyer Tax Credit

In my previous blog, I referenced that the California Association of Realtors (CAR) forecasted that the Franchise Tax Board (FTB) credit of $10,000 will expire in 10 to 20 days. Well, as of the 25th day of May, it has not run out. This is because FTB is calculating that only 57% of the applicants will qualify for the credit. Unlike the Federal Program that’ll give you back $8,000 regardless of the amount of tax you pay to the IRS, the FTB credit is only an off-set against the amount you pay to the FTB. So, unless you pay atleast $3,333 to the FTB annually, you will not fully benefit from the maximum amount of the tax credit. Also, FTB is thinking some people will not qualify for the program for one reason or another.
 
The total tax credit is $100 million and assuming everybody who applies can get the $10,000 total–that means the first 10,000 applicants will get the credit. But with the reduction to 57%, that means a total of 17,543 should be the cut-off point–with no saying how much each of the 17,543 can get or can’t get. The order of entry is determined by the order the fax was received. I heard rumours about fax number always being busy, but I got through on the fifth try on a Tuesday morning so it doesn’t seem too bad.
 
At the current rate, the tax credit should be valid until end of June 2010. The application status is updated every Thursday for the status to Tuesday at the FTB website which you can access by clicking here.
 
This is what you need to look at. It looks like when the number to the right that says $38,357,000 hits $100,000,000 they are going to shut-off the program.
 

Applications for First-Time Buyer Credit received as of 05/25/10

As of Estimated Total First-Time Buyer Applications Received 57% of Estimated Requested Credit
05/04/10 430 $ 2,351,000
05/11/10 2,470 $ 13,283,000
05/18/10 4,830 $ 25,473,000
05/25/10 7,330 $ 38,357,000
 
 
 
 
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California Home Buyer Tax Credit

With the Federal $8,000 first time home buyer tax credit coming to an end on April 30, 2010, the new California home buyer $10,000 tax credit comes into play from May 1, 2010. However, based on latest California Association of Realtor forecast, the California tax credit which is capped at $100 million is expected to be exhausted between May 10 and May 20, 2010–just 10 to 20 days from the initiation of the program. Assuming a typical minimum of 30 days for escrow, that means you won’t get the California tax credit unless you are already in escrow before April 30, 2010–which means the lucky 10,000 or so will get both the Federal $8,000 tax credit and the California $10,000 tax credit for a total of $18,000!
 
So, how is this California tax credit supposed to be a stimulus? It sounds like just a gift to a lucky few who were already rushing to get the Federal tax credit.
 
There were some discussions that the California Tax Credit can be reserved but that has been clarified to apply only to New Never-Occupied Homes and does not apply to existing homes.
 
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(First Time) Home Buyer Tax Credit Extended and Expanded

Following the Senate’s favorable vote yesterday, the U.S. House of Representatives just voted 403 to 12 to extend the home buyer tax credit, expanding the parameters to include existing homeowners and not just first-time buyers. As you may know, C.A.R. and our partners at NAR have worked for months urging Congress and the Senate to extend and expand this crucial piece of legislation. We expect President Obama to sign the legislation in short order.

As it now stands, the federal tax credit will be extended through April 30, 2010, with a 60-day extension if a binding contract is in place prior to the deadline. First-time home buyers will continue to be eligible for a tax credit of up to $8,000, while existing homeowners will be eligible for a reduced credit of up to $6,500. To qualify for the $6,500 credit, existing homeowners must have lived in their current residences for at least five years. The bill also increases the qualifying income limits from $75,000 for single tax filers and $150,000 for joint filers to $125,000 and $225,000, respectively. The purchase price of the home is capped at $800,000 in both instances.

Under additional provisions included in the bill, taxpayers can claim the credit on purchases completed in 2010 on their 2009 income tax returns. The legislation maintains the provision that home buyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase, and waives this requirement for active duty military personnel who move due to a military order.

Nationwide, more than 1.4 million first-time home buyers were given the opportunity to become homeowners as a result of the Federal Tax Credit for First-time Home Buyers.  We expect that number to increase dramatically in the months ahead with this new legislation in place. Thank you to our members who called, wrote, and e-mailed their congressional representatives and voiced their support for the home buyer tax credit. Your voices were heard – today’s vote is a direct result of your actions and involvement.

 
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IRS YouTube Video on $8,000 First Time Home Buyer Tax Credit

IRS posted a video on YouTube about the Federal First Time Home Buyer Credit.
 

   

 
If you can’t see the embedded YouTube video above, click here for direct linking.
  
They posted it on September 16, 2009 but the credit is expiring on November 30, so it is kind of late….
 
 
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Torrance Home Price Trend

Today I’ll be blogging about the home trend in the City of Torrance which is about 10 miles south of Los Angeles International Airport. It is the biggest city in the South Bay area and about the only city large enough to have adequate sample size to do any charting. You can probably say that looking at Torrance’s trend will give you an idea of the surrounding cities of Palos Verdes (RPV/RHE/RH/PVE/PVP) and Beach Cities (Redondo/Hermosa/Manhattan).
 
For those of you who don’t know Torrance, it is a nice neighborhood with good safety and good school systems. The surrounding cities to the south and west tend to have slightly better school system, slightly better safety, and higher priced homes. Torrance is a good middle class neighborhood. There are areas with "Torrance Address" which are actually part of Los Angeles City Strip and thus the children who live there go to the Los Angeles Unified School Systems (and much lower house price) instead of the better Torrance Unified School District (TUSD), but we’ll focus today on Torrance within TUSD system. Single family homes in this TUSD part of Torrance runs from around $500,000 to about a $1,000,000.
 
Let’s first look at Single Family Home price trend (excludes Condominiums and Townhouses):
 
There are a few spikes in the data, but you can see that median home prices seemed to bottom out during December 2008 and April 2009 and start increasing in May 2009. We use "median price" in the real estate industry to talk about the price of the region. Median price means the price of the home that is in the middle–so if nine homes were sold in a particular month, it would be the price of the house that was the fifth one from the bottom and the fifth one from the top.
 
Now, median price doesn’t just get influenced by the general home price change, but also the mix of the prices of the homes that are sold. So, you need to understand that the median home price is just one data point to analyze which way the house price is moving. In any case, the house price of Torrance seems to have bottomed out from around Dec 2008 to May 2009 and may be showing a rising trend.
 
Next we look at the charts of Sold Homes and Homes in Escrow (Under contract):
 
Typically, more real estate change hands over the summer, so the increase during the summer months are typical. However, you can see that the Closed Sale during the summer of 2009 is much more active than summer of 2008 and summer of 2007 (which was the price peak). But wait, what is that dip in the Closed Sale in Aug 09? You need to look at Under Contract (which preceeds the Closed Sale roughly by a month) and you can see that July 09 dip but came right back up in Aug–so you’d expect Closed Sales to make a strong showing in September 2009.
 
Another indicator to look at is inventory:
 
At the inventory peak in Dec 07, there was almost nine months worth of home inventory on the market–houses just weren’t selling back then. But if you look at Aug 09, you can see that there are less than two months of inventories which is 1/4 of the peak. There are many reasons inventory goes down but it generally means more people are buying a house than the number of people trying to sell a house.
 
Looking at houses currently for sale, you can see that the number of houses on sale has shrunk considerably from the previous year (by about -50 to -40%):
And the average days a house is on sale in the market has fallen to the level last seen in Aug 07:
When you take all of this data together, it does look like the housing market–at least in Torrance–has made it’s bottom and has started a gradual price accent.
 
So, how does the Condominiums and Townhouses price look like in Torrance? The data for those is not clear. Compared to Single Family Homes, there are a lot less Condo and Townhouse sales in Torrance so the data is not too reliable. However, looking at data that is available, it looks like Condos and Townhouses sale are still continuing their long creep sideways and haven’t really broken out upwards like Single Family Homes.
 
As the saying goes Single Family Home prices start rising first, then Townhouses and finally Condos (and fall from Condos first, then Townhouse, and Single Family Homes) so it may not be much longer for the Condos and Townhouse price to start rising in Torrance.
 
 
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First Time Home Buyer Credit to be extended?

So, the current $8,000 First Time Home Buyer Credit is coming to an end on November 30, 2009. To quickly review the program, those people who has not lived in a house they own for the last three years and have a combined income of $150,000 (or $75,000 for individuals) or less and will live in the house for a three year period will get a $8,000 gift from the federal government in the form of a tax credit if they buy a house/townhouse/condo. You MUST close escrow on or before November 30, 2009. If you pay less than $8,000 in taxes, it doesn’t matter as the government will give you back the whole $8,000 as a refund. DISCLAIMER: I am not a tax professional and cannot give tax advise, so refer to your tax professional for the details of the program or click here to go to the IRS site.
 
In my last blog, I mentioned that the $8,000 was a "nice to have" and it is nice to have money as your cash flow tend to be tight after you buy a house. You need to buy blinds, curtains, refrigerator, stove, washer/dryer, re-sod the lawn, replace the fence, paint…. There are currently bills pending in both the Senate and the House of Representatives to extend the credit through 2010. There are components of the bill which may increase the tax credit to $15,000 or to apply it to any home buyers (not just First Time Home Buyers). But the current odds are that the bill will simply be extended through 2010 with no expansion in the amount or the buyer–just like it was in 2009. You can read about it here in the Chicago Tribune website.
 
By the way, I am periodically running "First Time Home Buyer Seminar" about once a month now, so come learn about the housing market and how to buy a house–it’s free and there are no obligations! Click the link below to find out more about it.
 
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Los Angeles County June Median Price Spikes Up

It’s been a while since my last blog, but as things have been pretty uneventful, there hasn’t been much to blog about. I didn’t want to blog for the sake of blogging.
 
Looking at June 2009 Los Angeles County median housing price, we saw a spike to $325,000 where the median price has been crawling sideways at around $300,000 from January 2009 to May 2009. The data is a bit confusing as different analysis has different numbers, but my data set is consistent with the data coming from Data Quick courtesy of California Association of Realtors.
 
 
The chart above shows the median housing price from April 2003 which was chosen as a starting point since it matched the recent lows from Jan 09 to May 09 as the median price crawled sideways. You can see the spike in June 2009 which is a 9% increase from the previous month and makes it look like the housing market has bottomed out in price and has maybe started an increasing trend.
 
Working with my customers and submitting offers, this impact of the price spike can be felt. Many houses are being listed below value resulting in a bidding frenzy and houses getting sold above listing price in a matter of days if the house is nice and is in "move-in conditions." On the other hand, I have offers in on short-sale houses that are awaiting bank approval forever…
 
There are some speculation that the price spike is the result of people trying to take advantage of the $8,000 First Time Home Buyer Tax Credit which will be coming to an end on November 30, 2009 and that prices will collapse once again when the tax credit is over. Yes, it is nice to get $8,000 back, but when you are buying a house at a real low price and with 5.5% interest rate, would getting back $8,000 really make a difference in your purchase decision? If you are buying a $400,000 house (which may rise to $500,000 by the end of 2010), I would think that the $8,000 is a "nice to have" but not a real deal breaker…. For my thinking, I would say that the low house price and the low interest rate is the bigger contributor to home purchase and the tax credit going away will have minimal effect on house price…but more on the Tax Credit on my next blog.
 
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