Archive for December, 2009

First-Time Homebuyer Tax Credit Extended, Expanded and Broadened

On November 7, 2009, Congress enacted the Worker, Homeownership and Business Assistance Act (WHBAA) of 2009. This new act extended, expanded and broadened the benefits for the first-time homebuyer credit. The new deadline for reaping the benefits of this program is April 30, 2010. Changes to the program allow higher income limits and make certain existing homeowners eligible for the program. The new act enables many to participate who were previously disqualified.

The WHBAA extends the benefits of the first-time homebuyer tax credit, which is part of the Housing and Economic Act (HERA) enacted in 2008. The original version of the HERA homebuyer tax credit required the credit to be paid back annually by the borrower over a 15-year timeframe. Extended in early 2009, the HERA excluded the payback requirement. In addition, the payback requirement was also excluded in the further extension of the HERA on November 7, 2009.

If you enter into a home sales agreement or close on a home between November 7, 2009 and April 30, 2010, you may be eligible for the first-time homebuyer tax credit, even if you currently own a home. Some of the applications of the act are as follows:

* First-Time Home Buyer – You qualify as a first-time homebuyer if you have not owned any interest in a principal residence three years prior to your purchase. Your maximum benefit is $8,000.

* Replacement Homebuyer – You qualify as an eligible current homeowner if you have lived in the residence being sold for five consecutive years of the eight years prior to selling it and buying another home. Your maximum benefit is $6,500.

* Eligibility Expiration – If you have an executed contract on the purchase of a home, you must close by July 1, 2010 in order to be eligible.

* Income Limits – Were increased effective November 7, 2009, so income up to $125,000 is eligible to receive the benefit.

* Home Cost Limit – Any home is eligible as long as it does not cost more than $800,000.

* Tax Credit Calculation – The tax credit equals 10 percent of the cost of the home up to the maximum credit allowed.

* Claim the Credit – Use IRS Form 5405 to claim the homebuyer tax credit.

* Tax Credit is a Refund – Some are under the impression that the first-time homebuyer tax credit only reduces the amount taxed. Instead, it is actually applied as a credit to any tax you owe on your federal tax return and you receive the remainder, or all, of the credit if no tax is owed.

Do you currently own a home and want to sell it to buy another home? You may qualify. Are you looking to buy a home and haven’t owned a home for the past three years? You, too, may qualify. If you are in the process of buying a home, whatever you do, check out the extended first-time homebuyer tax credit to see if you qualify. You have nothing to lose, and everything to gain if you are approved.

Ki works, and lives, in Austin and operates a company in the Austin Texas real estate market. He provides a searchable database of the Austin MLS on his website. His website provides a blog with update market statistics on Austin real estate.

Americans Hunkering Down for a Chilly Economy

According to recent polls, more Americans would rather see the government work on the economy then work on the environment. The economy remains at the forefront of Americans’ minds and tops the list of concerns. Despite the empirical evidence that the economy is on the mend, people across the country still feel the effects of the worst recession since the Great Depression. The national unemployment rate is still at ten percent and retail numbers are still down.

The National Retail Federation reports that consumer spending this holiday is at a five year low. The fact that the hottest toy of this holiday season is under $10 is among the indicators that people are spending less than in years past. Spending on Black Friday and online is up slightly this year over last, but many analysts believe consumers may be holding out for better deals. To this end, retailers are preparing for a so called Super Saturday, hoping shoppers will come out in force the last Saturday before Christmas.

CNBC’s Steve Liesman reported that the majority of Americans feel pessimistic about the economy. A CNBC “Wealth in America Report” found that middle to lower class Americans plan to spend less this holiday and feel that the government, particularly the President, is doing a lousy job of repairing the economy. As banks thrive and repay the TARP funds from the stimulus package, Americans want that money to pay down the deficit rather than be spent on more stimulus packages.

For his part, President Obama has expressed public outrage at the banking industry. He invited the heads of the country’s biggest banks to the White House to scold them about their lending and compensation practices. In response, banks are repaying the TARP funds to minimize any leverage the government has to mandate changes to executive pay packages. Although, Bank of America has pledged to help the economy by lending $5 billion to small businesses next year.

Unfortunately, it still all comes down to jobs. Most Americans feel like the stimulus package helped the bankers keep their jobs, but did little for the average American. While the Treasury Department and the Federal Reserve point to indicators that show the economy is making a comeback thanks to the government stimulus, most Americans can point to someone they know who is unemployed or going through foreclosure.

The unemployment rate at 10 percent is probably not a truly accurate reflection of just how many Americans are out of work. Considering how long this recession has gone on, many Americans have been unemployed for over a year and have given up looking. The way the unemployment rate is calculated doesn’t factor in people who have given up looking for a job or those who are working part time because that is the only job they could find. The Bureau of Statistics and Labor calls this U-6 unemployment and puts that number at over 17 percent. That’s a much higher percentage of Americans with little money to spend and prospects looking bleak for the new year.

Ki works as a realtor in the Austin real estate market. His business offers a searchable database of homes in the Austin MLS. The site encourages potential buyers to look for Austin real estate through a map interface its also provides markets updates on its real estate blog.

Mortgage Rates Rise Off of Historic Lows

Two weeks ago mortgage rates hit historic lows with the 30 year falling to 4.78. The next week they fell even further to 4.71. This week they rose back up to 4.81. Although they rose a tenth of a point the mortgage rates are still near historical lows. Below are the nine lowest rates of all time. Not surprisingly they all occurred in 2009.

1. Dec 3rd – 4.71

2. April 30th – 4.78

3. April 2nd – 4.78

4. Nov 26th – 4.78

5. April 23rd – 4.80

6. Dec 10th – 4.81

7. April 16th – 4.82

8. May 21st – 4.82

9. Nov 19th – 4.83

So despite the increase from last week today’s rates are the 6th lowest rates of all time. The other major mortgage products increased as well. The 15 year mortgage rose from 4.27 to 4.32 and the 5 year arm rose from 4.18 to 4.26. The 1 year arm was the only product to fall going from 4.25 to 4.24. Below are rates from the weeks from Nov 12, 2009 to Dec 10, 2009

Dec 10, 2009

30-yr 4.81 15-yr 4.32 5-yr ARM 4.26 1-yr ARM 4.24

Dec 03, 2009

30-yr 4.71 15-yr 4.27 5-yr ARM 4.18 1-yr ARM 4.25

Nov 26, 2009

30-yr 4.78 15-yr 4.29 5-yr ARM 4.18 1-yr ARM 4.35

Nov 19, 2009

30-yr 4.83 15-yr 4.32 5-yr ARM 4.25 1-yr ARM 4.35

Nov 12, 2009

30-yr 4.91 15-yr 4.36 5-yr ARM 4.29 1-yr ARM 4.46

Jun 11, 2009

30-yr 5.59 15-yr 5.06 5-yr ARM 5.17 1-yr ARM 5.04

In addition to rates it’s interesting to at times to run numbers on actual mortgage payments. We calculated the mortgage on a 200k based on today’s rates. We did the same thing with rates from 2 weeks ago and rates from 2 months ago.

Dec 10

30-year $1050.53

15-year $1511.65

5-year ARM $985.05

1-year ARM $982.7

Nov 26

30-year $1046.91

15-year $1508.6

5-year ARM $975.7

1-year ARM $995.62

Jun 11

30-year $1146.89

15-year $1587.84

5-year ARM $1094.51

1-year ARM $1078.53

The difference from 2 weeks ago is pretty minuscule with a 200k mortgage costing 3.62 more a month this week. If we compare rates to six months ago it’s a little more interesting. A 200k mortgage would cost $96.36 less a month today than it did six months ago for a drop of 8.4 percent.

So what is our advice for people looking for a mortgage? I would probably avoid the 5 and 1 year arm and stick with the 30 or 15 year fixed. The general expectation is that rates are rising so there is no reason to be stuck with refinancing at higher rates in 1 or 5 years.

So what do we see happening in the future with mortgage rates? I would expect they will bounce around for the next few months. The economy seems to be improving but it’s going to take awhile before we get out of the doldrums. But once the economy starts to pick up its expected rates could rise perhaps dramatically.

Ki works in Austin texas. His site has information on historical mortgage rates and a mortgage widget. For people interested in Austin market he has a free search of the Austin MLS.

Mortgage Rates Reach New All Time Lows

Last week mortgage rates matched their all time low of 4.78. This week rates fell even further reaching a new low of 4.71. To put this in some context in terms of historical mortgage rates before the last 12 months the all time low was 5.24 which was reached in the middle of 2003. Today’s rates are a full half point below that.

Although the 30 year rate is the most significant of the 4 major mortgage products the other 3 fell as well. The 15 year mortgage hit a new all time low for the second week in a row falling from 4.29 to 4.27. The 5 year arm reached a new all time low of 4.18 last week and equaled that mark this week. The 1 year arm is the only mortgage product not currently at an all time low. It did fall from 4.35 to 4.25. Below are rates from the weeks from Nov 05, 2009 to Dec 03, 2009 along with rates from a year ago.

Dec 03, 2009
30-yr 4.71 15-yr 4.27 5-yr ARM 4.18 1-yr ARM 4.25

Nov 26, 2009
30-yr 4.78 15-yr 4.29 5-yr ARM 4.18 1-yr ARM 4.35

Nov 19, 2009
30-yr 4.83 15-yr 4.32 5-yr ARM 4.25 1-yr ARM 4.35

Nov 12, 2009
30-yr 4.91 15-yr 4.36 5-yr ARM 4.29 1-yr ARM 4.46

Nov 05, 2009
30-yr 4.98 15-yr 4.40 5-yr ARM 4.35 1-yr ARM 4.47

Jun 04, 2009
30-yr 5.29 15-yr 4.79 5-yr ARM 4.85 1-yr ARM 4.81

Dec 04, 2008
30-yr 5.53 15-yr 5.33 5-yr ARM 5.77 1-yr ARM 5.02

So what is the significant of new record lows? As we can see in the above numbers rates have been low for awhile. Rates have been below 4.85 for the last 2 weeks. That said hitting a new all time low is significant because it will generate some news and headlines, and a bunch of headlines about all time low mortgage rates could generate some buyer activity.

So with multiple mortgage products hitting all time lows which do we recommend? Although the arms have become more attractive since falling over half a point over the last 6 months the 30 year rate seems like the logical choice. With rates at all time lows it’s simply too hard to pass up locking in for a long period of time.

To see the effect of the falling rates we took today’s rates and translated them into a payment on a 200k house. We did the same thing with rates from 2 weeks ago and rates from a year ago.

Dec 03
30-yr $1038.47
15-yr $1506.58
5 ARM $975.7
1 ARM $983.87

Nov 19
30-yr $1052.96
15-yr $1511.65
5 ARM $983.87
1 ARM $995.62

Dec 04 2008
30-yr $1139.34
15-yr $1616.18
5 ARM $1169.68
1 ARM $1076.08

For a 200k loan a mortgage is 9.7% less (or $100.87 a month) cheaper today than a year ago. So what do we expect moving forward? Although we keep expecting rates to move up eventually and rates keep moving down they cannot move down much farther. It’s hard to know if rates are moving up or down over the next few weeks but the general view is that we should be seeing higher rates 3 to 4 months from now.

Ki is active in the Austin Texas real estate community. He built and grew a website, which allows buyers to search for homes in Austin. His site also has a free mortgage calculator and a mortgage rate widget.

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Financial Regulation: What Went Wrong?

In 1803, Lazare Carnot began the the study of entropy in thermodynamics, suggesting that natural processes become disorganized over time, leading to waste and inefficiency. So too, in economics does this now taken-for-granted law seem to be in clear effect: recession’s end has thus far led to little change in the regulatory structure of the Fed and other responsible bodies. The notable exception is the bill now before the House which aims to severely curtail the role of the Fed. Opinions on the extent and type of reform necessary are vehement and divisive. Suffice it to say that the US regulatory framework is in need of major overhaul. But what will regulation of financial markets look like, and how effective can it be?

Past precedent points us to the lessons learned after the Depression, when most of the modern financial oversight was established. The Glass-Steagall Act of 1933 prohibited mergers between commercial banks, investment banks and insurance companies, thereby limiting the liability of any single entity to impose systemic risk to the financial system (although it was not passed solely to combat this problem). The Gram-Leach-Bliley Act passed in 1999 repealed this law, enabling mergers like that between Citibank and Traveler’s Group to occur legally (though they merged beforehand and were given a temporary waiver until the law was passed) opening up the floodgates for institutions to become large enough that they could pose serious problems were a major crisis to occur. A moral hazard that (in the context of the worst financial crisis in US history) had previously been seen as an obvious problem had started to fall on deaf ears fifty years later.

Another piece of Depression-era legislation which saw its demise in the later part of the century was the Commodity Futures Exchange Act, which limited the number of speculators in commodities so as to avoid artificially induced price changes. Fourteen major financials were able to obtain exemptions and thus distort a market intended for farmers to hedge against sudden drops in demand for their goods, leading to the massive spike in oil prices seen last year. This dramatic increase, coupled with the real estate crisis, made for a deadly combination for the larger economy. There has been no subsequent reining-in of the commodities speculation market, and after the crash earlier this year a slow run-up in oil prices has ensued.

Both of these examples show a clear trend in US economic policy: anti-regulation fervor has culminated in the removal of important financial laws. As loopholes have widened, systemic risk increased to unsustainable levels and caused recession. Some of the measures taken to mitigate the crisis have already been made illegal, such as federal bailouts passed by the legislature (such matters are now the province of the FDIC), but most other reform projects still have loose timetables and fact-finding committees, not bills or recommendations. A consumer protection user is still hard-pressed for traction in Congress, where lobbyists and former financial workers abound. Public opinion will likely be the determining factor in who is regulated and for how long. But these examples from the past show a few areas where it might not hurt to take a long, hard look.

After attend the University of Texas Ki decided to live in Texas and work in the Austin real estate market. He built a website with a search for homes in the Austin MLS. There, anyone can look for Austin real estate online. His site also has information on mortgage rate trends.