Take Advantage of the Homebuyer Credit Before It Expires

 

In an attempt to jump start the real estate market, Congress passed the Worker, Homeownership, and Business Assistance Act of 2009, which was extended earlier this year.

 What Is It?

 Here are some highlights of the legislation as it stands now: 

  • A “first time home buyer” tax credit of up to $8,000.
  • A “repeat home buyer” tax credit of up to $6,500.
  • If the home was purchased in 2009 or later, the credit does not have to be “repaid”.
  • The credit is “refundable”, meaning that even if you don’t owe taxes, you can still claim the credit.

 Who Qualifies?

 To qualify as a New Home Buyer you must have not owned a home in the past 3 years.  To qualify as a Long Time Resident, you must have owned a home as your primary residence for 5 consecutive years out of the last 8 years.

 The Fine Print 

As with any government program, there’s always fine print: 

  • Both credits come with income limitations.  The credit begins to phase out if your Modified Adjusted Gross Income (MAGI) is $125,000 for single tax payers and $245,000 for married taxpayers filing jointly.  You become completely ineligible if your MAGI exceeds $145,000 and $245,000 respectively.
  • The credit is not an automatic $8,000 or $6,500 but is actually 10% of the sales price up to a maximum of $8,000 or $6,500.
  • Homes over $800,000 do not qualify.
  • You can’t claim the credit if you’re being claimed as a dependent on somebody else’s tax return or if you’re under the age of 18.

 Why Act Now? 

  • It’s a TAX CREDIT, not a tax deduction.  This means that it will offset your tax liability dollar-for-dollar.
  • It’s highly likely that the government WON’T extend this legislation further.
  • Many real estate markets have become affordable, but they won’t stay that way.  Most experts feel that the real estate markets in many areas are at or near bottom.

 Conclusion 

As a Wealth Manager, I would never encourage a client to buy a home simply because of a tax credit.  If however, you’re already looking for a home, have found one that you can afford, and plan to stay in the home for more than a couple of years, now is a great time to buy.

As with any large purchase, always check with your CPA, realtor and other financial professionals before entering into a contract.

Market Euphoria Fades Fast

With yesterday’s announcement that the government would be taking over both Fannie Mae and Freddie Mac, pundits and television talking heads began asking if the move signaled a bottom for both the housing market as well as the stock market.

Well, the market today responded with a resounding ‘NO’ and fell by almost the exact amount by which it rose yesterday.

The government’s move yesterday did have the effect of immediately dropping most mortgage rates by around 50 basis points.  The problem, as I was discussing yesterady with two friends who are mortgage brokers, is that unless lenders are willing to again start lending, the interest rate on loans is largely irrelevant.

Any time there is a bubble in the market, in this case the exceedingly easy access to financing we’ve seen the past few years, and that bubble bursts, the pendulum usually overreacts in the opposite direction.  Qualified borrowers, with high credit scores, low loan to value and adequate cash reserves are still finding it incredibly challenging to get real estate financing.   Not until LENDERS feel that the real estate market has stabilized will they begin to loosen up their underwriting a little allowing the credit markets to return to some modicum of normalcy.

I hope and wish that those pundits from yesterday were right and that we are forming a bottom in the market as it would be nice to be able to give friends, family and clients some good news for a change, but I’m not holding my breath.

Why Alternative Assets Make Sense

I had an interesting conversation this afternoon with a colleague that specializes in foreign exchange trading.  Now granted, he was trying to get me to move some client money to his firm, and felt that his approach is ideal for a portion of our portfolios.

Surprisingly, unlike a lot of financial planners and certainly contrary to many equity portfolio managers, I actually agree that, for a portion of client portfolios, what have traditionally been called “alternative assets” like real estate, commodities, foreign exchange, hedge funds and private equity, are an integral part of a well designed portfolio.  In fact, there are numerous studies over the years that have shown that, although they can be volatile in the short term, alternative assets, over the long term actually REDUCE portfolio volatility and in INCREASE overall return.  That’s right, you heard it right, portfolio volatility is reduced and overall return is improved.

Over periods of time, like the 1990’s traditional assets like stocks and bonds have outperformed “hard assets” like gold and oil.  Over other periods, the 1970’s for instance, the hard assets have outperformed.  With exposure to BOTH types of assets, your portfolio should perform better over time than a portfolio built around one or the other.

The moral of the story is, don’t be afraid of these other assets.  Although they’re not advertised on TV like some other asset classes, they can prove to be quite valuable to your long term growth prospects.