Patrick Carmichael's Real Estate Blog

Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state homebuyer tax credits.  To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive.  Buyers who are not first-time homebuyers may use the same timeframes to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.

Under the federal law slated to soon expire, a first-time homebuyer may receive up to $8,000 in tax credits, and a long-time resident may receive up to $6,500, for certain purchase contracts entered into by April 30, 2010 that close escrow by June 30, 2010.  Additionally, under a newly enacted California law, a homebuyer may receive up to $10,000 in tax credits as a first-time homebuyer or buyer of a property that has never been occupied.  The new California law applies to certain purchases that close escrow on or after May 1, 2010 (see Cal. Rev. & Tax Code section 17059.1(a)(4)).  California law generally allows buyers of never-occupied properties to reserve their credits before closing escrow, but buyers seeking to combine the federal and state tax credits will not be able to satisfy the timing requirements for such reservations (see Cal. Rev. & Tax Code section 17059.1(c)(1)(A)).  Other terms and restrictions apply to both tax credits.

The California legislature on Monday passed AB 183, providing $200 million for home buyer tax credits. The Governor is expected to sign the bill into law this week. C.A.R. supported this important legislation since its inception.  Part of a package of four bills passed at the request of the Governor, AB 183 is designed to help stimulate the economy and create jobs.  It allocates $100 million for qualified first-time home buyers who purchase existing homes and $100 million for purchasers of new, or previously unoccupied, homes.

The eligible taxpayer who closes escrow on a qualified principal residence between May 1, 2010 and December, 31, 2010, or who closes escrow on a qualified principal residence on and after December 31, 2010 and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010, will be able to take the allowed tax credit.

This credit is equal to the lesser of 5 percent of the purchase price or $10,000, taken in equal installments over three consecutive years. Under AB 183 purchasers will be required to live in the home as their principal residence for at least two years or forfeit the credit (i.e. repay it to the state).

The Federal Reserve announced yesterday it will maintain its target for the federal funds rate in the 0 percent to 0.25 percent range, and expects economic conditions to warrant exceptionally low levels of the federal funds rate for an extended period of time. “Information … suggests that economic activity continues to strengthen and that the labor market is stabilizing,” the Fed said in a prepared statement.

“Household spending is expanding at a moderate rate, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly,” the Fed said.  “However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls.

“While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability,” the Fed said.

The Fed also said it would end its program of purchasing mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac to help keep home loan rates low. That program will conclude at the end of this month when the Fed’s mortgage bond holdings reach the $1.25-trillion limit it set last year.

Affordable home prices, tax credits for home buyers, historically low interest rates, and a large number of distressed properties prompted many first-time home buyers to enter the market in 2009, according to California Association of Realtor’s 2009-2010 “State of the California Housing Market” report released today.

California’s median home price hit bottom in February 2009 at $245,170.  Since then, the median home price has increased steadily in month-to-month comparisons, but remained below 2008 levels throughout 2009.  The annual median price is projected to increase to $280,000 in 2010 from $271,000 in 2009.

Homes priced $500,000 or less dominated the sales mix throughout 2008 and early 2009, but peaked at 85 percent in January 2009.  Meanwhile, the market share of homes sold for more than $500,000 increased from 15 percent in January 2009 to 25 percent in July 2009, holding steady around that figure for the remainder of last year.

U.S. home prices fell 1.2 percent in the fourth quarter from a year earlier, the smallest loss in two years, as a federal tax credit for home buyers boosted demand.