California Tax Credit…A limited pot of gold!

With the Federal Tax Credit of $8k expired and no signs of a new one, California buyers have one last chance to cash in on a buying bonus. The $10,000 being offered by California for first time buyers is capped at $100 million. Repeat buyers and first time buyers of new homes also has another $100 million set aside. Both credits are scheduled to expire at the end of the year or when the funds are all used. So how many buyers will $200 million cover in this market?

20,000 qualifying buyers…but the real question is how long will it take for 20,000 buyers to pass through the purchasing process? The industry has seen numerous buyers delay closings to take advantage of these tax credits. So we should see a higher amount of buyers concentrated in a shorter period of time.

Below is some data from the California Franchise Tax Board about the remaining amount left for the first time home buyer tax credit (not the one to do with new homes bought by repeat buyers or first timers):

Estimated applications received for First-Time Buyer Credit as of 05/13/10 (Updated 05/13/10)

The figures shown below are only estimates, based on small samples. The numbers are overstated as there will be duplicate, revised, and invalid applications included as we have not verified any of the applications. These estimates are only provided to give a general idea of the number of applications received and the amount requested for the First-Time Buyer Credit. We are showing 57% of the estimated requested credit since the $100 million cap will only be reduced by 57% of the credit allocated to the buyer. The amounts do not reflect actual amounts which will be allocated. These estimates will be updated each Thursday until we are sure that we have received more than enough applications to allocate the full $100 million. Once we determine that we have received sufficient applications to allocate the full $100 million, we will stop accepting applications for the First-Time Buyer Credit. Estimates for the New Home Credit will be provided once our computer system is completed.

California Tax Credit- $10,000!!!

California has a new tax credit starting on May 1st 2010. Below are some details. Keep in mind there is $100 million allocated to each credit…it is a first come, first serve system and last year’s tax credit for new homes ran out 8 months sooner than the expiration of the credit.

-Provides a 5% tax credit, up to a $10,000 limit, to all buyers of new, never-occupied homes…investor buyers not included.
-Provides a 5% tax credit, up to a $10,000 limit, to first-time buyers of existing homes.
-Sets aside $100 million for each program, for a total of $200 million. First come, first serve basis…you need to get your application in for the credit before the funds run out.
-Requires buyers to close escrow between May 1 and Dec. 31 to qualify. New-home buyers have until Dec. 31 to sign a purchase contract, then must close escrow by Aug. 16, 2011.
-Requires buyers to live in the home for at least two years. Former credit was 3 years.
-Provides for the tax credit to be paid in thirds over a three-year period. Former credit paid in full in year 1.
-Sets no income limitations on buyers. Former credit had income limitations.
-Requires buyers to repay the tax if they fail to live in the home for two years or fail to close escrow on a new home by Aug. 16, 2011.

Email me with questions!

New California Tax Credit…Double dipping?

It looks like the governor is about to sign a California tax credit that applies to both first time home buyers on re-sale homes and any type of occupying buyer on a newly constructed home. The $10,000 credit starts for any closings on May 1st through the end of the year. The $10k is spread across 3 years but you have to have the home as your primary residence for the whole time. There is a slim chance for a double dip of the state and federal credits; here is how it would work:

If you put a home under contract in April and closed in May, you could potential qualify for:

$8,000 Federal credit…needs to be under contract by the end of April 30th
$10,000 State credit…needs to close after May 1st

Email me with questions and when we talk tax, always check with a CPA!

50% of California Homes Sales are REO’s or Short Sales

Click here- stats are out for 2009 and it was a big year for distressed properties- short sales and REO’s aka bank owned homes. 50% of all transactions were from these two types of sales- that’s up from 38% in 2008.

For San Diego, it is very area specific…any community built between 2002-2006 usually has a very high default rate. It is simply a matter of timing…these buyers had the risky loans, little money down and were caught towards the top of the market. Very few owners were able to “ride things out” because they had no equity in their home and didn’t want to continue paying towards an asset that was 30-40% off the original value they paid (even if they were still employed and could afford the monthly payments).

You can also find REO’s and short sales in older, more established communities but these are also the areas where some normal sellers might be on the market because they have owned their home long enough that they aren’t affected by the events of the early 2000’s.

The reality is anybody selling today is a distressed sale- even if they aren’t a short sale or an REO. The market is at a low point, so if you have the option to continue to own, that would be the better long-term financial decision.

This article has 50% of all sales coming from distressed sellers in 2009 but the real number would be how many of the other 50% were “forced” to sell even if they didn’t fall into the the short sale or REO category?