A brand new tax break, historically-low interest rates, same old scary headlines: is this a great time to buy or what?
Seriously.
The paradox of a "buyer's market" is that very few buyers buy in a buyer's market. No, the attitude of most buyers who find themselves in a market where they finally have the upper hand can best be summed up in these three little words: "Are you kidding?" Or maybe, "No, you first".
This reluctance to follow direction isn't just self-defeating buyer behavior, of course, although it does suggest that we should find another name for the kind of market we're in. Maybe we could call it an "are-you-kidding market". Because a buyer's market is always a scary place for buyers to find themselves. In fact, the full and complete name of whatever we're going to call the opposite of a seller's market could be a when-you-and-everyone-you-know-has-been-laid-off-or-taken-a-pay-cut-or-is-worried-about-getting-laid-off-or-taking-a-pay-cut-or-is-just-plain-worried market.
But three factors should conspire to get at least a few buyers—the tip of the spear—off the fence and into their own homes, sooner rather than later, and that's all we ask: just a few buyers. Because an injection of buyers has just as much of a "multiplier effect" as an injection of stimulus dollars. All it takes is one lone buyer, in one cubicle, telling everyone what a great deal he got, and the next day a few more buyers filter silently into the market...and a few more...and a few more. I just hope the stampede doesn't break out next week, because I'll be helping my wife organize our spare bedroom.
And great deals are to be had for the hardy pioneer. One is the new $8000 tax credit for first-time homebuyers you may have heard about, although you may not have wrapped your mind around what a huge break it is—at least I didn't, not right off the bat. The new $8000 credit, which replaces the $7500 "credit" (which was really a 15-year interest-free loan) offered from April 9 to December 31, 2008, applies to first-time home purchases on or after January 1, 2009 and before December 1, 2009. What's so great about it? First-time buyers can use the $8000 tax credit to offset their total federal tax burden. No wonder my CPA was blown away. For example, if on April 15, 2010 Mary Firsttimer finds herself owing $8000 in federal income taxes, the tax credit wipes out her entire tax burden. If she owes just $5000 in federal income taxes, the $8000 tax credit not only wipes out her $5000 tax burden but also throws in a $3000 IRS refund check.
Certain restrictions apply, as they say. The tax credit isn't automatically $8000, although in this area it often will be, since so many homes here sell for $800,000 or more: the credit is the lesser of 10 percent of the purchase price or $8000. The property must be intended as the buyer's primary residence; it can't be an investment property. Condos and townhouses, as well as single-family homes, are eligible. To get the full credit there's a limit of $75,000 adjusted gross income for single filers, or $150,000 for those filing jointly. Homebuyers with annual adjusted gross incomes above these levels, up to $95,000 (single filer) or $170,000 (joint) are eligible for a reduced tax credit.
A "first-time homebuyer" is defined as a homebuyer who hasn't owned a principal residence within the three years prior to the purchase of the home. The homebuyer's spouse if any must also meet this qualification.
Perhaps the best news about the $8000 tax credit is that, unlike the previous $7500 credit, which had to be repaid in equal installments over a 15-year period, the new credit does not need to be repaid unless the home is sold within three years of purchase.
Here I should point out that you should seek advice from a professional tax advisor for specific tax calculations and timing for claiming the tax credit. "Why?", you might ask. Because I'm not an investment, tax or legal advisor, and this information does not constitute legal, tax or investment advice. But you knew that. I should also point out that next to the word "Byzantine" in my dictionary is a picture of the federal tax code, and there may be a few wrinkles in this tax credit that have yet to be ironed out.
Another reason it's a great day to buy a home is that today's mortgage interest rates are only a few basis points higher than absolute rock-bottom. Freddie Mac's March 5, 2009 weekly survey of mortgage rates showed an average commitment rate of 5.15% for a 30-year fixed-rate loan (with .7% in points and fees), only 10 basis points higher than January 2009's 5.05% commitment rate, the lowest rate Freddie Mac has seen since it began keeping records in 1971.
Low interest rates aren't the only thing stretching homebuyers' purchasing power these days. As I've said elsewhere on this site, home prices are down 20 to 50 percent from their peaks, depending on neighborhood. And it looks like at least a few sellers are finally getting the memo.
As for the scary headlines I mentioned, I culled these examples from Yahoo over the past day or so, and I didn't have to look hard:
Why are dire headlines so wonderful? Because they keep newscasters and economists employed, and newscasters buy homes, although most of the economists I've heard don't sound like they've ever bought a home. But the even better reason they're wonderful is that they scare the competition right out of the real estate marketplace. These days it's the right crowd and no crowding.
So let's see some enthusiasm for homebuying. I know it's there. Let's have a smile. That's it! Smile!