Congress recently passed a bill extending the first-time homebuyer tax credit to mid-2010. Bob Bowman, Mortgage Consultant with PERL Mortgage, discusses the components of this extension — as well as economic indicators he uses to monitor daily interest rates.

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Market Comment
Mortgage bond prices rose last week, pushing mortgage interest rates lower. The Fed spent another $45 billion buying mortgage bonds between November 5th and the 11th. For all the criticism the Fed receives for the handling of the economy, they deserve credit for keeping mortgage interest rates low throughout the year. However, the long term outcome is uncertain. The record Treasury auctions continued to be absorbed in trading without any major problems.

For the week, interest rates improved by about 7/8ths of a discount point.

This Wednesday’s consumer price index data will be the most important release this week. Producer price index data along with retail sales data will set the tone for the start of the week. While inflation indications could hurt mortgage interest rates, signs of tame inflation could help rates improve.

Tax Credit Extension
The housing market received some good news when Congress recently acted on the pleas of housing sector professionals and extended the $8000 first time home buyer tax credit. In addition, the program was expanded to include move-up buyers with a $6500 tax credit. The program now runs through April of next year. Prior to the extension the program was set to eclipse at the end of November. Additional details about the extension can be found here.

Even with the positive measure, the program is criticized for doing nothing to address the foreclosure problems that continue to plague the housing market. Unfortunately, the cost to extend the credit is around $1 billion per month. This has politicians from both sides of the aisle concerned.

The new and move-up buyer incentives coupled with historically low interest rates make now a great time to purchase a home. Low rates also make it favorable for many current homeowners to refinance.

Great news for you first-time homebuyers out there - this week, the Senate and House passed a bill (the House vote was 403-12) extending the first-time homebuyer tax credit through mid 2010, which means that you have more time to find your dream home and take advantage of a monumental tax credit from the U.S. Government.

Here’s a rundown of the most recent developments:

First time homebuyers (who are defined as buyers who have not owned a home in the past three years) may be eligible for a credit of up to $8,000.

New Buyer Categories
Along with first-time homebuyers, existing homeowners (or “repeat buyers”) who have lived in their principal homes for 5 consecutive years (out of the past 8 years) and are purchasing a new principal residence may be now eligible for a credit of up to $6,500.

New Income Limits
Buyers filing as single or head-of-household taxpayers can claim the full credit if their modified adjusted gross income is less than $125,000. Married couples filing joint returns are eligible if their combined income is less than $225,000. Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit.

New Dates
Many news outlets are referring to the credit as being extended through May, others are referencing June as the deadline. Specifically: to be eligible, binding purchase agreements must be signed by April 30, 2010 and deals must be closed by June 30, 2010.

New Guidelines for Qualifying Homes
All homes with a purchase price of less than $800,000 qualify. Vacation home and rental property purchases are not eligible.

The Credit is Refundable
If the amount of income taxes you owe is less than the credit amount you qualify for, the government will send you a check for the difference. For example: a first-time buyer qualifying for the full $8,000 credit who owes $5,000 in federal income taxes would receive a $3,000 refund. Qualified home buyers can take the tax credit on their 2009 or 2010 income tax return.

The tax credit does not have to be repaid unless the owner sells, or stops using the home as their principal residence, within three years after the date of purchase.

All spheres of the housing industry are very excited about this breaking development! With rates still hovering at historic lows and a renewed extension on this historic tax credit, now is the time for first time homebuyers to consider entering the market!

Market Comment
Mortgage bond prices fell last week pushing mortgage interest rates higher. The Treasury auctions were mixed with the 3 and 10-year auctions showing decent foreign demand. Unfortunately the 30-year auction was a huge disappointment and caused mortgage interest rates to worsen Thursday. The fear of future rate hikes sent mortgage bonds lower Friday pushing mortgage interest rates higher.

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

The consumer price index will be the most important release this week. Any signs of inflation will generally not bode well for mortgage bonds. Retail sales and the Fed minutes are also likely to factor into trading this week. Any surprises may lead to mortgage interest rate fluctuation.

Tax Credit
A slew of professionals tied to the housing sector made eager pleas to Congress last week requesting the $8000 first time homebuyer tax credit be extended. The benefit was part of the stimulus plan and is set to expire the end of November. The White House indicated the program “helped the economy” and led to “quite a bit of success” and noted consideration of extending the program. There are additional proposals in the Senate to not only extend the program, but also to increase the tax credit and remove the first time homebuyer qualification. Unfortunately the cost to extend the credit is about $1 billion per month. This concerns politicians from both sides of the aisle. The House voted Thursday to extend the credit for American service members another 12 months. Both parties have members pushing for the extension to apply to all purchasers. Analysts indicate some sort of extension is very likely.

Last week was an example of the danger in thinking rates would always improve. The good news is that despite last week’s bounce higher, rates still remain historically favorable.

Jim Miller, head of The Miller Group at Jameson Real Estate joins Top 200 Producer Dean Vlamis to discuss the current real estate weather report — and how supply, inventory, and the national mortgage market affects Chicago.

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