Feds Sweeten Deal for First-Time Buyers

First-Time Home Buyers Get $8,000 Boost

It's summer, it's a buyers' market, and if you're a first-time home buyer,* you're sitting pretty because Uncle Sam is giving you an $8,000 tax credit when you buy a home.

Highlights:

*Timeframe: Must purchase a home (close and receive title) on or after January 1, 2009 and before December 1, 2009.

*Down payment or closing costs -- Qualifying buyers can use these funds upfront as a down payment or for closing costs.

*FHA-approved lenders, only -- At this time, only FHA-approved loans are required if tax credit is used as a down payment.

*Need 3.5% upfront -- While the $8,000 tax credit can be used for the down payment or closing costs, home buyers must still come up with FHA's required 3.5% down payment on their own.

» More about $8,000 Tax Credit

* First-time home buyer means you cannot have owned a home for the past three years prior to purchase.

Home prices dropped a record 12.4% in the final quarter of 2008

National Association of Realtors reports that home prices dropped a record 12.4% in the final quarter of 2008 - the biggest year-over-year decline in 30 years.

NEW YORK (CNNMoney.com) -- Home prices fell 12.4% during the fourth quarter of 2008, the largest year-over-year decline since the National Association of Realtors began keeping comprehensive records in 1979.

The median price for a U.S. home sold during the fourth quarter of 2008 fell to $180,100, down from $205,700 during the last quarter of 2007.

Distressed properties, the foreclosures and short sales that have flooded the market, accounted for 45% of all deals. That has driven sales volume up in Nevada, California and other states hit hard by foreclosures, but these heavily discounted homes have also pushed median prices down.

"People are responding to discounted prices and are slowly absorbing the excess inventory," said NAR President Charles McMillan. "Buyers clearly see value in today's pricing."

Pain is widespread

The vast majority of metropolitan areas, 134 out of 153, recorded price declines compared with the last quarter of 2007.

"Home markets are weak just about everywhere," said Pat Newport, an analyst with HIS Global Insight, "but in a few states, distressed sales are driving transactions."

Cape Coral-Ft. Myers, Fla., which has the third highest rate of foreclosure filings in the nation, according to RealtyTrac, prices fell a devastating 50.8% for the year, to $110,900 from $225,300. That was the most precipitous plunge for any metro area.

In Saginaw, Mich., prices fell 41.4%; Riverside-San Bernardino, Calif., prices dropped 40.8%; and San Jose, Calif., prices declined 37.7%.

The Beaumont-Port Arthur area of Texas bucked the national trend. Its median home price jumped 16.7% to $132,600 - the highest increase in the nation. Other winners included Bloomington, Ill., up 9.6%; Dover, Del., up 6.5%; and Bismarck, M.D., up 6%.

The high number of distressed sales pushed prices down for several reasons, according to Lawrence Yun, chief economist for NAR. For one thing, many sales were in low- and moderate-income housing developments where buyers during the boom years financed their purchases using subprime mortgages. In higher-end areas, fewer exotic mortgages were used.

"Take Orange County, Calif.," said Yun. "It's the lower-priced areas there where homes are selling. The high-priced areas along the coast are not. That has skewed the results."

And the high number of foreclosures means banks are willing to slash prices deeply to move inventory. Many of the properties they've obtained through repossessions now sit vacant, soaking up lender money for maintenance, heating, property taxes and insurance. The banks willingly take lower prices to end those cash outlays, which brings down prices even for normal sellers.

Then there's also what Yun calls a "frozen" jumbo-mortgage lending market, which has also slowed sales of higher-priced homes and reduced median prices.

The good news is that bargain prices are bringing many new buyers into the market." Many are first-time homebuyers who were priced out of the market during the boom," Yun said.

Stimulus help

NAR is hoping a piece of the stimulus bill before Congress will build on that momentum and provide an extra incentive for buyers.

"Assuming housing provisions in the economic stimulus package are quickly enacted and provide enough encouragement for homebuyers, we could see a quick lift in home sales for the critical spring home-buying season," said Yun.

On Thursday, it appeared that the final iteration of the homebuyer's tax credit, which had very different provisions in the House and Senate versions of the stimulus package, was shaping up to be closer to the House bill, according to Yun.

That means a credit of $7,500, perhaps $8,000, or 10% of home price for first-time homebuyers. This windfall will not have to be repaid by homebuyers and can be taken off 2008 taxes. NAR estimates that could draw in an additional half million buyers this year.

"It could help reduce the high inventory of homes for sale," said Yun, "and get housing markets moving again. It's hard to get the economy back to growth until that happened."

Obama's prime-time ad skips over budget realities

By CALVIN WOODWARD, Associated Press Writer – Wed Oct 29, 9:18 pm ET

WASHINGTON – Democratic presidential candidate Barack Obama was less than upfront in his half-hour commercial Wednesday night about the costs of his programs and the crushing budget pressures he would face in office.

Obama's assertion that "I've offered spending cuts above and beyond" the expense of his promises is accepted only by his partisans. His vow to save money by "eliminating programs that don't work" masks his failure throughout the campaign to specify what those programs are — beyond the withdrawal of troops from Iraq.

A sampling of what voters heard in the ad, and what he didn't tell them:

THE SPIN: "That's why my health care plan includes improving information technology, requires coverage for preventive care and pre-existing conditions and lowers health care costs for the typical family by $2,500 a year."

THE FACTS: His plan does not lower premiums by $2,500, or any set amount. Obama hopes that by spending $50 billion over five years on electronic medical records and by improving access to proven disease management programs, among other steps, consumers will end up saving money. He uses an optimistic analysis to suggest cost reductions in national health care spending could amount to the equivalent of $2,500 for a family of four. Many economists are skeptical those savings can be achieved, but even if they are, it's not a certainty that every dollar would be passed on to consumers in the form of lower premiums.

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THE SPIN: "I also believe every American has a right to affordable health care."

THE FACTS: That belief should not be confused with a guarantee of health coverage for all. He makes no such promise. Obama hinted as much in the ad when he said about the problem of the uninsured: "I want to start doing something about it." He would mandate coverage for children but not adults. His program is aimed at making insurance more affordable by offering the choice of government-subsidized coverage similar to that in a plan for federal employees and other steps, including requiring larger employers to share costs of insuring workers.

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THE SPIN: "I've offered spending cuts above and beyond their cost."

THE FACTS: Independent analysts say both Obama and Republican John McCain would deepen the deficit. The nonpartisan Committee for a Responsible Federal Budget estimates Obama's policy proposals would add a net $428 billion to the deficit over four years — and that analysis accepts the savings he claims from spending cuts. The nonpartisan Tax Policy Center, whose other findings have been quoted approvingly by the Obama campaign, says: "Both John McCain and Barack Obama have proposed tax plans that would substantially increase the national debt over the next 10 years." The analysis goes on to say: "Neither candidate's plan would significantly increase economic growth unless offset by spending cuts or tax increases that the campaigns have not specified."

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THE SPIN: "Here's what I'll do. Cut taxes for every working family making less than $200,000 a year. Give businesses a tax credit for every new employee that they hire right here in the U.S. over the next two years and eliminate tax breaks for companies that ship jobs overseas. Help homeowners who are making a good faith effort to pay their mortgages, by freezing foreclosures for 90 days. And just like after 9-11, we'll provide low-cost loans to help small businesses pay their workers and keep their doors open. "

THE FACTS: His proposals — the tax cuts, the low-cost loans, the $15 billion a year he promises for alternative energy, and more — cost money, and the country could be facing a record $1 trillion deficit next year. Indeed, Obama recently acknowledged — although not in his commercial — that: "The next president will have to scale back his agenda and some of his proposals."

Income Redistribution

Redistribution Plan may take a while to catch on

Yesterday on my way to lunch, I passed one of the homeless guys in the area, with a sign that read 'Vote Obama, I need the money.'

Once in the restaurant my waiter had on an 'Obama 08' tee shirt.

When the bill came, I decided not to tip the waiter and explained to him while he had given me exceptional service, that his tee shirt made me feel he obviously believes in Senator Obama's plan to redistribute the wealth. I told him I was going to redistribute his tip to someone that I deemed more in need--the homeless guy outside. He stood there in disbelief and angrily stormed away.

I went outside, gave the homeless guy $3 and told him to thank the waiter inside, as I had decided he could use the money more. The homeless guy looked at me in disbelief but seemed grateful.

As I got in my car, I realized this rather unscientific redistribution experiment had left the homeless guy quite happy for the money he did not earn, but the waiter was pretty angry that I gave away the money he did earn.

Well, I guess this redistribution of wealth is going to take a while to catch on with those doing the work.

Halloween is going to suck this year!!!