This past week we have seen headlines scream at us that the sky is falling and the world is coming to an end. The National Association of Realtors announced that sales of existing homes plummeted nationally 27.2% in July. Buried deep in that press release the San Diego Association of Realtors reported existing home sales were down 13% in San Diego County.

Yes, 13% is a large drop, but in a County where the Federal Tax Credit for buying a home ended in May and the State Tax Credit for buying your first home ended in June, a drop of 13% was not unexpected. The fact is many home buyers accelerated their purchases this year to take advantage of those tax credit offerings!

Another national press release announced that the average price for the sale of an existing home was up 0.7% over the last 12 months. Claiming that the momentum from earlier this year was dead and that home prices had topped out.

Again, buried in that press release, RealtyTrac said San Diego County experienced a 4.6% increase in home prices during the past year. While fewer people may be buying homes (see discussion above regarding the tax credit incentive), they are paying more for their homes. And, those homes are increasing in value better than the rate of inflation or the rate on your savings account from any bank today!

And, finally, another national press release did highlight some positive news. This press release found that the home loan failure rate (including default notices, scheduled auctions and bank repossessions) had decreased by 10%. While the press release did not editorialize the benefits of this drop in the home loan failure rate, it did acknowledge that the reduction was a good sign.

Again, buried in the back of this press release, the numbers for San Diego County were a bit more improved. Home loan failure rates in San Diego County were found to be down 37% from July of 2009! That is an amazing factor and shows a very strong move by the home loan holders in San Diego County back towards stability and confidence in their home ownership financially.

So, let’s review the only rule that truly applies to real estate investment anywhere in the world … LOCATION, LOCATION, LOCATION! Can you guess where the smart buyers are putting their money in real estate today? Do you think it is on a national basis or right here, in San Diego County?

Well, you are right, But, I also would guess that you would not have come to that conclusion if you only read the headlines. Dig deeper, be a smart consumer!

This is the lowest recorded interest rate since the survey began in 1970. Lower rates mean lower monthly payments for borrowers, or a larger loan amount at the same monthly payment amount. This provides buyers with more buying power and makes housing more affordable to everyone.

While it is impossible to predict world economic events that may impact the average mortgage rate, it is safe to say, this is one of the best times in our lifetime to consider a new home purchase, from an economic perspective. Home prices have started to rebound in most communities. With today’s buying power and affordability, now is the time to consider a new home purchase.

It is important to note, the original date for entering into a binding purchase agreement has not changed. This extension only applies to those agreements entered on or before April 30, 2010. This extension allows those specific agreements until September 30, 2010 to close escrow and hence, provide the new home owner with the opportunity to claim the “up to $8,000 or $6,500 Federal Tax Credit”.

The median home sales price in Southern California stood at $305,000, the first time in nearly two years that the median price has exceed $300,000. The San Diego County median home price rose 15.3% year over year for May 2010. The median priced home in San Diego now costs $340,000, the highest median price since August of 2008. This is the median price for all homes sold in San Diego County, including resales, condos and new homes.

In addition, the number of homes sold in the month of May 2010 was up 19.6%, year over year, for San Diego County. 3,879 homes were sold during May 2010, as compared to 3,242 homes sold in May of 2009. Again, the Federal Tax Credit stimulus was a big driver in this increase in sales.

The 2010 California Tax Credit for new and first time home buyers will continue to provide some stimulus for home sales. However, this program has a limited financial capacity. The first time buyer component of the plan will likely be subscribed by the end of June. The new home component may be available for a bit more time after that.

April 30, 2010 is the last day you may execute a binding purchase agreement to qualify for the Federal Tax Credit. That purchase agreement must result in an escrow closing by June 30, 2010 to complete the requirements of eligibility for the Federal Tax Credit.

For those home buyers in California, the Tax Credit becomes available on May 1, 2010. So, if you sign your binding purchase agreement by April 30, 2010 and then close escrow by June 30, 2010, you may be eligible for BOTH the Federal and the California Tax Credits! That could be as much as $18,000 for a first time home buyer and $16,500 for a purchaser of a new home (where the buyer has owned a home for at least 3 of the previous 5 years)!

All other eligibility requirements are still in effect, so please refer to my earlier posts for the California and Federal Tax Credits to determine if your specific circumstances allow you to participate in these programs. Or, stop by a Brookfield Homes Sales Office and let one of our professional sales counselors help you understand the details.

Purchasing a new home is a big step. While affordability is at record highs in most parts of the country, the incentives offered by California and the Federal governments will not last forever. You have 15 days to act to participate in the Federal Tax Credit. It is now time to take advantage of this program!

You will recall that the Federal Tax Credit offers first time home buyers up to $8,000 and repeat buyers up to $6,500 for the purchase of a new home. Legislators have continued to repeat “there will be no further extensions of this stimulus program.”

In earlier posts, I outlined the specifics of the tax credit, but there are a couple of points you should remember. First, this is a true credit against your next year’s tax bill. A tax credit applies dollar for dollar to your tax liability. If you owe the IRS $10,000 in tax liability and you are eligible for $8,000 of tax credit, your tax liability would be reduced to $2,000!

Second, this tax credit is fully refundable. This means if you owed the IRS $5,000 on your next tax return, and you are eligible for $8,000 in tax credit, then the government would send you the difference, $3,000, as a tax refund!

And third, this tax credit is applicable to the purchase of a newly constructed home or a resale home. The government is trying to stimulate economic activity with this tax credit. And, given today’s low mortgage interest rates and low home prices, your buying power may never have been stronger. This means you can get more home for your money today.

Taken all together, now is a great time to buy a new home! But, that time is quickly slipping away. You must act now if you want to take advantage of low prices, low mortgage rates and the federal tax credit for buying a new home!

SBX8 21, by Senator Ashburn has been introduced into the California State Senate. And, ABX8 34, by Assemblyman Jeffries has been introduced into the California State Assembly. Both of these bills would create a $10,000 tax credit per qualified buyer, to be paid over a three year period. Both bills are introduced into the Special Session #8 of the Legislature and could become law by passage during the special session. Both bills call for a May 1, 2010 start date, to coincide with the completion of the Federal Tax Credit program currently in place. For any other particulars of these bills, please see the links highlighted above.

The bill will normally undergo a series of changes as they work their way through the legislative approval process. Differences in the bills may arise as amendments and edits are made along the approval path of each chamber. There are a few key issues to keep watch over as the bills progress. First, the start date is a key issue. The Federal Tax Credit applies to purchase contracts entered into by April 30, 2010 and the home closes escrow by June 30, 2010. Starting the California Tax Credit on May 1, 2010 provides for a continuity of benefits available to the California purchaser. This continuity is important to maintain the construction of new homes (hence the benefits the State receives by offering the Tax Credit) and to support the confidence that is building in the demand for new homes. Any gap in this time line, from the Federal Tax Credit closing and the State Tax Credit opening, could create a hesitation in the minds of buyers and hence a slow down in the jobs recovery.

Another key issue is the direction to the Franchise Tax Board (FTB) to create a “reservation system” for the State Tax Credit. Again, modeled after the Federal Tax Credit, the reservation system allows buyers to contract for the purchase of a new home and receive a “reservation” of a future Tax Credit from the FTB. This approach allows buyers to purchase homes during the availability of the Tax Credit and close escrow at some time in the future, when the home construction is complete. It adds surety for the buyer that they will receive a Tax Credit and incentive for the home builder to create those needed construction jobs.

Most of the other qualifications for the Tax Credit remain consistent with the 2009 version. A new provision would cover First Time home buyers. The 2009 Tax Credit applied only to newly constructed homes, because of the greater surety around job creation and fiscal benefits to the state. The 2010 Tax Credit provides a portion of the Tax Credit Allocation be set aside for first time home buyers. There is no restriction for First Time home buyers to buy a newly constructed home. This provision will be a source of debate among the legislators. As proposed, the Ashburn and Jeffries bills each set aside $100 million for the qualified purchasers of newly constructed homes and $100 million for the purchase of homes by qualified first time buyers. This new provision will be ironed out through the legislative process.

Stay tuned for more information as the process unfolds.

For First Time Home Buyers

Maximum price for the purchased home is $800,000.

New home must be the principle residence of the buyer(s) for the next three consecutive years.

Income limitations $125,000 for full credit by a single buyer, (up to $145,000 for partial credit), $225,000 for a married couples for full credit, (up to $245,000 for partial credit).

First Time Buyer must be at least 18 years of age, may not be a dependent on someone else’s tax return and may not have owned a home in the past three (3) years.

The purchase may not be of a home from a direct lineal ancestor or descendant.

The Tax Credit is based upon 10% of the purchase value, up to a maximum of $8,000.

The Tax Credit is fully refundable, meaning if you owe less than $8,000 in tax liability, the IRS will send you the difference.

The new limitations (for income, qualification of the buyer and source of the purchased home) all became effective on November 6, 2009 and will remain in effect until a purchase contract is signed, no later April 30, 2010, and the home closure, no later than June 30, 2010.

There are special rules for members of the armed forces who have been stationed outside the United States for at least 90 days. Please consult you professional tax adviser for how these rules may impact your decision to purchase if you are a member of the armed forces.

For homes purchased prior to November 6, 2009, the rules of the original First Time Home Buyer Tax Credit still apply.

For the Move-up Home Buyer

All of the above qualifications and restrictions apply, except the Tax Credit is limited to $6,500, the Buyer must have established a permanent residence in another owned home for at least 5 of the previous 8 years and the final point regarding the “original” legislation does not apply . There was no Move-up Home Buyer Tax Credit in the original legislation, so to be eligible to apply for this Tax Credit is limited to homes purchased after November 6, 2009, the effective date of this legislation, signed a contract before April 30, 2010 and closed escrow by June 30, 2010.

As with all tax related decisions, I recommend you discuss them with your professional tax adviser, because your individual circumstances may create other opportunities or alternatives.

For additional information please refer to the following websites:

National Association of Realtors

National Association of Home Builders

Internal Revenue Service

Wall Street Journal

On November 6, 2009, HUD issued two (2) new Mortgagee Letters, specifically 2009-46A and 2009-46B. Mortgagee Letter 2009-46A (ML09-46A) is a temporary direction to address market conditions and expires on December 31, 2010. Mortgagee Letter 2009-46B (ML09-46B) is the new permenent guidance for FHA’s condominium project approval process and replaces the direction provided in Mortgagee Letter 2009-19 released June 12, 2009.

ML09-46A will apply to “… all FHA case numbers assigned on or after December 1, 2009 through December 31, 2010.” ML09-46B is “… effective for all case numbers assigned on or after December 7, 2009, except as noted.” And, for all previous condominium approvals issued by HUD, “…they will expire two years from the date of placement on the list of approved condominiums. Further participation in the program after the two-year period has expired will require recertification …”.

Under ML09-46A, the concentration of FHA insured loans within an approved project will be increased to 50% and may be further increased to 100%, provided certain conditions are met. Under ML09-46B the maximum concentration will be reduced back to 30%.

Under ML09-46A the pre-sale requirement is temporarily reduced to 30%, and the use of Spot Loans is allowed through February 1, 2010. Under ML09-46B the pre-sale requirement is raised back to 50% and the use of Spot Loans is eliminated.

There are a number of other issues to discuss and review in these new Mortgagee Letters. I will do more research on each and provide additional information in the coming days.

The Move-up Home Buyer Tax Credit is available today for buyers that are in escrow and meet the income and ownership guidelines!

I you are a First Time Home Buyer, who is currently in escrow, and meets the other income and ownership guidelines, but your escrow was scheduled to close after December 1st, you are now eligible for the Tax Credit, without any further changes to your purchase or escrow documents.

As more information becomes available, I will pass it along!