Mortgage Center
The clock remains ticking. Actually, in the margin of this page, it is ticking down.
The November extension for first time home buyer tax credits and the subset of "move-up" buyers ends in just over 50 days.
The credit is up to $8,000 for first time buyers and there are credits for homeowners who have owned and lived in their home for 5 of the last 8 years.
To be eligible, home buyers must be under contract for a new home no later than April 30, 2010, and must be closed no later than June 30, 2010.In addition to meeting the deadline dates, here's a basic set of requirements to be tax credit-eligible:
- You can't purchase the home from a parent, spouse, or child
- You can't purchase the home from an entity in which the seller is a majority owner
- You can't acquire the home by gift or inheritance
- Each buyer in the purchase must meet eligibility requirements
There are other criteria, too.
For one, the sales price on the subject property cannot exceed $800,000. Homes sold for more than $800,000 are ineligible for the tax credit. Furthermore, households earning more than $125,000 as single-filers, or $225,500 for joint-filers, are ineligible.
You can read the complete eligibility requirements at the IRS website, or, you may just find it simpler to speak with your accountant about it. There are some nuances in qualifying for and claiming the tax credit on your returns and getting a professional's opinion is always wise.
And lastly, don't forget that government's tax credit program is a true tax credit. It is not a tax deduction. This means that a tax filer whose "normal" tax liability is $3,500 and who is eligible for $8,000 in credit will receive a $4,500 refund from the U.S. Treasury.
If you're currently looking for homes, mark your calendar for April 30, 2010. It is 7 weeks away and you can be sure that as the date gets closer, buyer traffic is going to increase. You may find sellers more willing to negotiate today than several weeks from now.
Mortgage rates improved last week in low-volume trading.
The week played out sort of as predicted. Monday to Thursday saw steady improvements to the market, but Friday was the big driver of the week.
After a better-than-expected Non-Farm Payrolls report Friday morning, mortgage markets -- and mortgage rates -- reversed.
Rates were at their best late Thursday afternoon and it was the second consecutive week that rates dropped.
Both stocks and bonds gained on the week. It wasn't the normal Stocks v. Bonds trading, but was American investments v. any other country. The flight to quality of US investments has helped mortgage rates in these past two weeks.
Mortgage Rate Predictions
Things are going to get volatile. After Friday's big sell-off, this week starts with us sitting just over the 100-day moving average and there is a lot of room for mortgage bonds to fall. When bond prices fall, interest rates rise.
We also have the Federal Reserve's support for mortgage markets ending in just 3 weeks. The impact of their support has been worth anywhere from 0.5-1.0%.
There is not much data this week. We have Consumer Confidence on Tuesday, Retail Sales on Friday, and very little else. Things in the EU are settling down with the northern countries grudgingly finding a way to work with Greece. That uncertainty has helped mortgage rates quite a bit lately.
The perfect storm would be that the Fed stops supporting mortgage bonds at the same time as overseas investors begin to feel less uncertain over the international economic situation. There's a lot of room for mortgage rates to go up in a very short amount of time.
Fewer homes went under contract in January as the housing market continues to limp through the winter months.
According to the National Association of Realtors®, the Pending Home Sales Index fell to its lowest level in 3 quarters this January. By contrast, in October 2009, the index had touched a 3-year high.
The Pending Home Sales Index measures the number of homes that have gone under contract to sell, but have yet to close nationwide. It's compiled using data from more than 100 regional listing services and 60-plus brokerages -- the sample set encompasses 20 percent of all home resales in a given month.
Economists have come to rely on the Pending Home Sales Index because of its high correlation to actual home sales. 80% of all home marked "pending" close within 60 days. Many of the rest close within 120.
Therefore, when we see Pending Home Sales show weakness like it did in January, we can infer that home resales will remain weak through the spring.
But will they really?
- Fewer sales should drag down home prices, bringing more buyers into the market
- Mortgage rates are still very low, but are poised to rise in just a few weeks
- The home buyer tax credit requires buyers to be in contract by April 30, 2010
In other words, there's a confluence of factors that could lead to a rush of sales around the country over the next two months, reversing the housing market's recent momentum.
Both conforming and FHA mortgage rates have improved over the past two weeks, but Friday's Non-Farm Payrolls report could lead to a sharp reversal.
Our mortgage rate predictions for the week had the jobs report forecast as the big event of the week and that's still likely to be true.
The expectation is that 30,000 jobs were lost in February. If more jobs were lost, rates will likely hold still. If less jobs were lost or if there was a net gain, rates will jump and jump fast.
The release is set for 7:30 AM CST tomorrow. Most lenders post their rates between 8:30 and 9:30 Central.
It's not just that this is an influential report, it is 100% of the impact on mortgage rates will be reflected on the very first rate sheets of the morning.
It is not uncommon for interest rates to jump by .25% or more on reports of this magnitude. Jobs are the most central element of the economy and Wall Street will act on the data.
If you're worried about rising rates, it wouldn't be a bad time to consider a lock. We're in this very familiar holding pattern where rates might tick down a very small amount, but could jump up significantly.
According to the the National Association of Realtors®, "distressed homes" represented nearly 40% of homes sold in January 2010. Clearly, real estate investors are taking advantage of good deals on cheap property. Naturally, there is risk.
This NBC Today Show interview first ran in March 2009, featuring real estate expert Barbara Corcoran. Despite its age, the message remains relevant. Today may be a terrific time to buy a bank-owned home -- just make sure you do your research first. There's plenty of ways for investors to get burned.
Some of the tips in the video include:
- Buy in your own backyard
- Start small, then build to a bigger portfolio
- Watch receipts -- rent rolls don't matter if tenants aren't paying rent
Corcoran also gives pointers on how to evaluate a prospective tenant.
Foreclosures should represent a large number of 2010's total home sales and will offer interesting opportunities to bona fide real estate investors. Before you jump in, make sure to watch the video. Remember, the stats and the data are from 12 months ago, but the advice stays meaningful.
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