In an effort to stimulate the housing market, the Federal government is rewarding first time buyers with a tax credit of up to 10% of the cost of the home (up to $8,000) when certain guidelines are met.

For First Time Buyers
A first time buyer is defined as a person who has not owned a home in the last 3 years – and these days, first time homebuyers are in the driver’s seat of the U.S. home buying market.  Not only are they receiving a massive amount of attention and support, they’re selecting from the best inventory in recent years and they’re enjoying historically low mortgage interest rates. But buyers must act soon: the tax credit expires on December 1, 2009.

For Experienced Buyers
Sellers who were once timid are now are reentering the market, giving buyers more top quality homes from which to choose. This raises buyers’ confidence towards home values – the increased market activity will ensure appreciation over the next few years, and this heightened interest will cause inventory to flow with more stability.

For Sellers
There’s demand! Finally, the $8,000 tax credit is spurring more activity in the market. With more potential buyers viewing properties, sellers have a better chance of selling at a faster rate. If you’re thinking of selling, consult with a realtor immediately to properly stage and list your home before the tax credit expires.

For Owners who are Staying Put
This increased market activity will boost neighborhood optimism, the number of comparable properties sold in each area, and ultimately property values. Owners will be able to tap into more equity based on a higher appraised value. They’ll be able to remodel, vacation – or even pay off other debts.

Tax Credit Guidelines
First time home buyers with adjusted gross income up to $75,000 ($150,000 for couples) are eligible for the full credit; the credit is phased down if you earn more than those amounts. It’s not available for individuals with an income above $95,000 ($170,000 for couples). If the home is sold within 3 years, the entire amount of the credit is recaptured upon the sale, but doesn’t have to be repaid if the buyer stays in the home for at least 3 years.

The Clock is Ticking
Most buyers need at least 1-2 months to find their dream home. The closing process can take 30-60 days (sometimes longer for new construction). If you’re a new buyer, start your process now – and accelerate your timeline by September 1, 2009. Potential sellers: start staging your homes during the summer months to prepare for a whirlwind of interest this fall!

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Market Comment
Mortgage bond prices had the worst week in a very long time, falling precipitously and pushing mortgage interest rates considerably higher. Consumer sentiment data was stronger than expected, starting the bond market off on the wrong foot. Debt supply concerns permeated throughout the financial markets with the US Treasury auctioning $100 billion of notes. Escalating oil prices added fuel to the fire. Fortunately, the Fed stepped in to stop the bleeding toward the end of the week which helped bonds recover a small portion of the large losses.

For the week, interest rates rose by about 1 and 1/2 of a discount point.

Friday’s employment report will be the most important release this week. If the data shows signs of economic recovery, rates may rise. On the flipside, signs of weakness may bode well for rate improvements.

Productivity
Productivity is the rate at which goods or services are produced. It is most commonly defined in terms of labor, which is the contribution of people to the process. Labor costs represent about two thirds of the value of the output produced. The Bureau of Labor Statistics of the US Department of Labor releases the most widely cited productivity statistics quarterly and annually. Increased productivity is often credited for economic growth with little signs of inflation.

Productivity is significant in that as it increases, businesses can produce more with the same or less input. This wealth building effect is vital to the US economy. As productivity increases, the US economy generally performs better.

While the bond market generally favors signs of weakness in the economy, bonds tolerate growth as long as the economic environment shows little or no inflationary pressures. Unfortunately, inflation fears have lately escalated.

To avoid future uncertainty, now is an ideal time to take advantage of today’s still favorable rates.

Market Comment
Mortgage bond prices rose last week causing mortgage interest rates to fall. Most of the gains came early in the week prior to the surprise inflation data. Weaker than expected retail sales data, along with concern about the health of the banking industry, helped mortgage bonds improve. Unfortunately, Thursday and Friday’s stronger than expected producer price and core consumer price data stoked inflation fears, thus erasing some earlier gains.

For the week, interest rates improved by about 1/2 of a discount point.

The housing starts data will set the tone for trading this week. Leading economic indicators data may result in mortgage interest rate fluctuation.

Inflation Concerns
Inflation is an increase in the level of prices of goods and services over a period of time. Mixed inflation signs do not generally bode well for mortgage bonds. Inflation erodes the value of fixed income securities generally causing bond prices to fall and interest rates to rise.

The mortgage bond market received mixed inflation data last week. The producer price index, a major gauge of inflation at the producer level, rose a surprising 0.3% in April. This figure was considerably higher than the expected 0.1% increase. However, the core rate, which excludes volatile food and energy, rose 0.1%, just as expected. Consumer prices were unchanged in April.

With mixed data and President Obama stating that the US debt load is “unsustainable”, the fear of inflation looms. If future data echoes the core consumer price data, mortgage interest rates may rise. However, if future data alleviates some of the recent concerns, we could see rates hold steady or even lower.

Floating in this environment is risky. Now is a great time to take advantage of mortgage interest rates at their current historically low level.

Say goodbye to winter with food, drinks and laughter!

1st Mondays is a new monthly co-branded networking event sponsored by PERL Mortgage and hosted at Jameson Real Estate. The next event is this Monday, May 4th from 5-7 at Jameson (425 West North Avenue). This “Cuatro de Mayo” celebration of sorts features salsa, chips, guac, quesadillas and margaritas — and an evening of improv starring Chicago’s best comedy veterans. The event is free, and we hope to see you there!