Lennox's Real Estate Blog

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Archive for the ‘Tax Credit’ Category

What a Ride . . .

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As many of you know, April 30 marks the expiration of the U.S. Federal Housing Tax Credit. What has commonly become known as “the tax credit” originally kicked off on February 17, 2009 when President Barack Obama signed into law the American Recovery and Reinvestment Act which included an $8,000, non-repayable tax credit for first time homebuyers. This tax credit was intended to help support the housing market  as an integral part of the overall recovery of the U.S. economy.

In the weeks following the passage of the tax credit, interest rates fell below 5% and mortgage applications nearly doubled. There was an immediate uptick in home sales in the “more affordable*” price ranges throughout the nation. What we soon discovered was that the tax credit – combined with low interest rates and adjusted home prices – provided buyers with a compelling reason to buy.

As we transitioned into Fall 2009 and the expiration of the tax credit drew closer, real estate professionals everywhere reported a frenzy of first-time buyers trying to close on homes before November 30. Meanwhile, the Federal Government decided to extend the tax credit. On November 6, 2009 President Obama signed into law the updated Federal Tax Credit, which not only saw the extension of the existing $8,000 tax credit for first-time buyers, but also a new $6,500 tax credit for eligible repeat buyers.

Unarguably, the tax credit has bolstered home sales over the past 16 months, proving to be most effective with first-time buyers who don’t have an existing home to sell. The National Association of REALTORS® projects the credit will spark 900,000 such purchases this year, on top of two million last year. In addition, 2010 is expected to see 1.5 million repeat purchasers. According to Moody’s Economy.com, when the previous tax credit was due to expire last fall, existing-home sales peaked at a 6.5 million annual rate. This spring, they’re expected to peak at a 5.7 million rate in May. The National Association of REALTORS® recently stated that existing-home sales rose 6.8% to a seasonally adjusted annual rate of 5.35 million units in March from February.

The positive effects of the tax credit were first felt in the “more affordable” price ranges, which represent about 50% of all home sales, and then started making their way up the price points. The $6,500 tax credit motivated many repeat buyers to jump off the fence and make their move to a new home. As a result, the mid price ranges saw an uptick in sales, followed by slight increases in the upper end.

For many generations, homeownership has been considered one of the fundamental components of a healthy American economy. This is the very reason that my Scottish, immigrant grandfather went into the real estate business nearly 80 years ago.

What it comes down to is that the tax credit did what it was designed to do; it helped with efforts to stabilize the U.S. economy. What can we expect to happen in the wake of the expiration of the tax credit? Stay tuned for my next blog entry and I will give you my thoughts.

*More affordable refers to those homes that are priced at – or – below the median home price in a specific market.

Written by Lennox

April 30, 2010 at 3:09 am

Breakfast with Zillow . . .

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February 19 was John L. Scott’s annual Top 1% Awards Breakfast for recipients in the Western Washington region. I look forward to this event every year because it gives me an opportunity to spend time with some of the most productive sales associates in our company and recognize them for achieving John L. Scott’s pinnacle award. This year’s event included a presentation by Dr. Stan Humphries, Chief Economist at Zillow.com.

Dr. Humphries discussed the conditions that have helped drive the market in recent months (tax credit, increased affordability, low interest rates) and provided a forecast for the coming year. He suggested that while transaction levels have probably hit their bottom on a yearly basis, home prices may still decline by a couple of percentage points. Dr. Humphries also reaffirmed some of the predictions myself and others have been making about rising interest rates and the expiration of the tax credit. Dr. Humphries provides an interesting comparison between various major metropolitan markets which you can read about in his Zillow blog; it’s worth a read.

For my presentation, I reminded everyone in the room that regardless of what happens when the tax credit expires or if interest rates rise, we ARE who we CHOOSE to be. Personally, I am not higher interest rates. I am not the end of the tax credit. It’s all about the focus and attention you give to the factors that you can control. We are professionals. We are an energy source for our clients. Ultimately, my point is that you are whatever you want yourself to be. And as you move forward, remind yourself of this and I promise that success will follow.

Congratulations to all of our 2009 award recipients and thank you for being a positive contribution to the John L. Scott Team!

Written by Lennox

February 22, 2010 at 4:50 pm

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