NOW OR LATER? WHEN TO CLAIM YOUR $8,000 FTB TAX CREDIT

With the deadline for filing federal tax returns fast approaching, I have clients asking about whether 2009 buyers can claim their $8,000 tax credit on their 2008 tax return. The answer is YES.

Even if you don't close by April 15, you can still claim the credit this year. Read on to find out how...

The basic eligibility requirements for the credit are: the home must have been purchased on or after Jan. 1 and before Dec. 1, 2009; the buyer may not have owned a home in the three years prior to the purchase; and the buyer must have a modified adjusted gross income (MAGI) less than $95,000 for single tax payers or $170,000 for married filers.

Two factors affect the amount of credit qualified buyers can claim: it can only be equal to 10% of the purchase price of the home, up to a maximum of $8,000; and it is reduced for buyers with an AGI (adjusted gross income) of more than $75,000 for single filers, and $150,000 for joint-filers.

To claim the credit, buyers must complete IRS Form 5405 to calculate the amount of the tax credit, and enter it on line 69 of the IRS 1040 income tax return.

Qualified buyers have several options for when to claim the tax credit, but they can claim it only after the purchase of the home is complete.

Buyers who complete their home purchase prior to April 15, 2009, can easily claim the credit on their 2008 income tax return.

If the qualifying home purchase will be completed shortly after April 15, buyers can file an extension for tax year 2008 and claim the credit when they file their 2008 return, which must be done by October 15. Or home buyers can claim a qualified purchase on their 2009 income tax return, which they will file in 2010.

Some things qualified buyers should take into consideration when deciding whether to claim the credit on their 2008 or 2009 returns include how quickly they need the refund and their expected income for 2009.

For more information, visit http://www.federalhousingtaxcredit.com/, or give me a call and I'll put you in touch with a qualified tax professional.

WORDS OF WISDOM FOR FIRST-TIME BUYERS

First-time buyers continue to drive the activity in our market.

There are less than two active listings under $250,000 right now for each one under contract. Below $150,000, it's basically a one-to-one ratio. Half the homes on the market under $150,000 are under contract - the rest are either unrealistically priced, too beat up, or stuck in short sale pergatory.

The fact is, if it's clean, priced right and not next to the Interstate, it's probably under contract.

That's why HAVING A PLAN is so important right now.

If you are a first-time buyer, you need to do a couple of things in order to get the outcome you desire.

First, you must get pre-approved. This is not optional. In a multiple offer environment, sellers (often banks) want buyers who are rock solid. If you can't produce a pre-approval letter from a known, reputable lender, chances are it won't be you going under contract.

Second, I strongly encourage you to get together with your agent (preferably, me) for a serious heart-to-heart before you begin looking. Understanding how the real estate contract process works... understanding your rights and responsibilities as a buyer... and understanding how to deal with the competition in our market is critical to your success.

A well-written real estate contract protects you... a poorly written contract put you and your earnest money deposit at risk. If you don't understand what you are signing, don't sign.

Your agent should clearly explain the differences betweeen traditional resales, short sales, foreclosures, and HUD homes. The process for each is unique, and the strategies you employ will be different for each type of seller. Your agent should be able to clearly articulate how each of these types of sales works, and how your approach should differ from situation to situation.

Real estate agents are not commodities. They are a collection of ethics, experiences, expertise and problem-solving abilities. Some excel, some are terrible.

The agent you choose is as important as the home you buy... because if you select the wrong agent, your odds of ending up in the wrong home go up dramatically.

SURVIVING THE BLIZZARD OF 2009

It was about 12:40 this afternoon when I drove down the embankment off of Highway 36 at the Broadway exit, scrambling to get to off a completely gridlocked freeway and on to the frontage road alongside the highway so I could take my chances getting home via surface streets.

I followed a pickup truck, drawing courage from his successful navigation down a short bumpy hill and off the freeway, and by the time I left Broadway and turned on to 70th Ave I was feeling pretty unstoppable. Of course, it took another hour and 15 minutes to get home from there, but I had successfully freed myself from the snowy, gridlocked prison known this afternoon as the Boulder Turnpike.

What a day!

I had a closing scheduled for 4 p.m. this afternoon downtown, but with the bad weather blowing in and predictions calling for it to get worse during the day, I started things off this morning by coordinating an earlier closing and we all agreed to meet downtown at 10:30 a.m.

By 9 a.m. it was coming down in blankets in Arvada, but we were already committed and our closer was travelling up from Highlands Ranch to meet us halfway. In real estate, a closing is like a wedding, and there are so many moving pieces that must be aligned perfectly that cancelling or postponing is not an option we like to exercise.

By the time we finished signing our papers and completing the transaction, it was 11:30 and the snow was intensifying in Denver. By noon I was on I-25 and the snow was blowing horizontally, straight out of the north. I fiddled with the radio dial, without luck, trying to find a traffic report.

My Honda Pilot shook as gusts of wind blasted by, my frozen windshield wipers pushing smudge back and forth across my line of vision. I tried to lower the driver-side window to clean the windshield with my towel, but the window was frozen shut. The next time we came to a standstill, I got out of the car and did a rapid fire scrub on the windshield, which only helped a little.

Interstate 70 was completely shut down because of a 15 car pileup at Sheridan, so I continued north on I-25. The Boulder Turnpike had been the scene of a terrible pileup earlier in the day, but it was open now and so I figured I could take it for a little ways and then get off if things got bad. As soon as I exited I-25, the Turnpike came to a frozen stop. Thirty minutes and about 200 yards later, I made my run down the embankment.

Note to self for future blizzards: do not get on the Boulder Turnpike during a whiteout!

I made it home around 2 p.m. It took a little over two hours to go 17 miles, and I considered myself lucky.

I know there were thousands of others out there today who were suffering with me in the Blizzard of 2009. It was not fun.

But when the skies clear out and the spring sunshine returns tomorrow, we'll have one more two or three-day winter wonderland, giving my kids a final (?) chance to sled, slide and make snow angels in the backyard.

That's Colorado. Whether you love it or hate it, you always have to be ready for it!

ENDLESS REFERRALS

I just finished a book by Bob Burg called “Endless Referrals”. It’s not that referrals are new to me – cultivating and attracting referrals has been at the core of my business model for over a decade... but in the market we are in, and in the economy we are in, we all need to work on getting better at everything we do every day.

Many of you know I am very active with the Arvada Chamber of Commerce. Specifically, I meet with a group of business owners every Tuesday for lunch where we network, share information and work to build one another's business.

I gave about 15 copies of this book away last month because I think that learning how to cultivate referrals is absolutely essential to long-term success in any business. And one of the proven ways to generate referrals is to be a "giver".

Not a manipulative, calculating "giver"... no, that will never work.

Jim Rohn says that "we attract what we become". It's easy to roll over that comment and not get it... but I have internalized it to where it's part of who I am.

If you want to be surrounded by kind people... be kind. If you seek to attract honest, ethical people, you must become honest and ethical. If you want to work with well read people, be well read. If you desire to associate with compassionate people, be compassionate.

It's really a simple formula, and I have found over and over that my best referrals come from the people I have the most in common with. So work on becoming more, becoming better, becoming more humble, honest, and hardworking... and you will find that "Endless Referrals" isn't just a book title - it's a business model for long-term success and prosperity.

NEW APPRAISAL RULES FIGURE TO SLOW PROCESS

Inflated appraisals have been a huge issue in real estate for many years, and real estate commissions all over the country have had enough...

In response to complaints about too many appraisers being too cozy with lenders who routinely ask them to bring properties in "at the number" in exchange for more business, new regulations are coming soon that will force lenders to give up their existing appraiser relationships and, instead, order appraisals from "pools" of pre-screened appraisers who will not be permitted to have direct contact with the loan originator.

The two arguments against this are as follows:

1) appraisers who specialize in certain areas or certain types of properties will not be readily available to appraise in their areas of expertise, while those "out of their league" on certain types of properties will be asked to submit binding appraisals, and

2) this "appraiser pool" system will break down accountability between appraiser and lender and probably lessen the overall responsiveness of appraisers, who often will expedite appraisals or otherwise accommodate clients working off of tight timeframes for lender partners they know, trust and value.

The upside, in turn, is a perceived end to corrupt appraiser-lender relationships that are focused more on saving deals than protecting a buyer's interests.

In my opinion, however, the answer here lies with the consumer. If buyers do their research and choose to work with ethical, trustworthy lenders, these problems would not exist. I understand there have been plenty of not-so-ethical people in the lending and appraisal business, but any buyer should do some research on who he or she is dealing with before signing anything.

In the age of the Internet, there are very few secrets. Seeking out a personal referral from someone you know and trust is always the best way to find a competent service professional. Ratings agencies like the Better Business Bureau or a simple "Google Search" of a person's name or company may be all you need to do to get the answers you need.

Every piece of legislation always has unintended consequences, and while I'm sure there will be cases where shady appraisers are squeezed out of the market, we're all going to have to be prepared for extra delays and a few more headaches with some of our appraisals.

Since full licensing (with fingerprints and background checks) for mortgage lenders went into effect in Colorado two years ago, we've already flushed most of the cheaters out of our business. Now new regulations are just making it harder to do business.

ROCKY MOUNTAIN NEWS: DEATH OF A NEWSPAPER

As most of you know by now, the Rocky Mountain News ceased publication yesterday, two months after the paper's parent company announced it needed a buyer in 30 days to stay in business.

This story is interesting to me on two levels. First, back in the day (1992), I was a journalism major in college and spent two years working for a newspaper in Sacramento, California.

But second, and perhaps the more important lesson, is why the Rocky died.

Because of new technology, over the past few years I have cancelled my newspaper delivery, discontinued traditional "home phone" service and publish much of my own material electronically.

And while I thought the Rocky's website was decent, the reality is that the newspaper could not adapt fast enough to the changes in technology and to the changes in the economy.

Prepare for change.

That's about the best advice I can give to anyone. If you're a sole proprietor or an independent contractor, recognize that YOU are the product. You may be selling something, but the reality is that most people will make a decision on the SELLER before they decide on the service or commodity.

Rather than link to a story about the Rocky's demise, I thought it would be better to post this 45-slide photo gallery of Rocky employees as they gathered to hear the news on Thursday. Not pretty.

Remember that no matter who you work for or what you do, YOU are the product. I can't emphasize enough how important it is to devote some time and focus each day to looking for ways to become faster, smarter, healthier, better educated, more accountable and increasingly efficient.

Becoming a better product in the marketplace is the wisest thing you can do right now. Let the demise of the Rocky be a warning to us all...

MORE ON THE GOVERNMENT'S PLAN TO "STABILIZE" HOME PRICES

Yesterday I posted that Fannie and Freddie are getting ready to increase fees on mortgages. After hearing President Obama's speech yesterday on "stabilizing the housing market", you'll see why.

"A key element of the plan will allow up to five million borrowers who owe more than their home is worth to refinance through Fannie Mae and Freddie Mac."

If Fannie and Freddie are essentially going to agree to take on five million "bad loans", doesn't that significantly increase their operating costs?

"For those already in foreclosure (but not yet out of their homes), the federal government will provide matching funds to lenders to lower interest rates on loans. The plan requires that payments be no more than 31% of monthly income."

So if you owe more than your home is worth, but your payment is now affordable, aren't you just renting the home from the government until you decide to move, at which time you mail the keys back to the lender?

One section of the Obama housing plan that will require congressional approval for enactment would give bankruptcy judges added power to perform "cramdowns", or unilateral powers to renegotiate mortgage loans when borrowers go into bankruptcy. If this change to the bankruptcy codes is approved by Congress, get ready for a lot more bankruptcies over the next few years.

I'm not saying we shouldn't work on some kind of stabilization plan. I'm just saying this plan has a very high likelihood of driving interest rates up, which means that under the Obama plan future buyers are going to pay a large part of the price for mistakes that were made in the past.

That's why rates in the 5's RIGHT NOW are too good to pass up.

"I REMEMBER WHEN INTEREST RATES WERE IN THE FOURS..."

Although I can give you a detailed list of reasons why housing under $400,000 in the Denver metro area has upside (no new construction coming online, better-than-average economy, growing population, $8,000 first-time buyer tax credit), there's one elephant in the room - at least as I see it - and that's higher interest rates.

In addition to the inflationary effect of $800 billion in government spending, Fannie Mae and Freddie Mac announced today that, in another effort to clean up their bleeding portfolios, loan fees will be increased across the board on April 1.

What that means to borrowers is that, in about six weeks, there will be a .75 point add on to the cost of Fannie or Freddie financing for any home purchased with a down payment of less than 25%. You likely won't pay the .75 point directly as a closing cost... rather, you'll see it "priced into the loan", which means it will make rates about 25 basis points higher than they otherwise would be.

On a $200,000 fixed rate loan amortized over 30 years, an extra 25 basis points pushes your P&I payment up from $1,167 at 5.75% to $1,199 at 6.00%. That $32 a month, times 360 payments, equals $11,520 in higher payments over the life of the loan.

I have said for a while that your best opportunity to take advantage of low rates and ample inventory is RIGHT NOW. And as I have said before in this space, rates are low because there is fear in the market.

If and when people's feelings about our economic situation change, rates are going nowhere but up.

WHEW, WHAT A WEEK! (OR, HOW THE STIMULUS BILL WILL AFFECT COLORADO)

Well, there was no lack of drama in Washington this week.

The House and Senate voted on Friday to approve the final version of the $787 billion (with a “b”) economic stimulus package that has been the talk of the country for the past month.

While we certainly can debate the merits of whether this bill was appropriate or responsible, it is going to have a dramatic and undeniable impact on our lives both in the short-term and in the long-term (unless, of course, you don't own a house, don't have a job, don't have children and don't pay taxes - if that's you, then life simply goes on).

Since what we do here is help folks buy and sell homes, let's focus for a moment on the most important provision of this bill as it pertains to the Colorado housing market: the debate over the tax credit provision for home buyers.

The tax credit provision was one of the most heavily lobbied and debated components of the economic stimulus package. In fact, because I am involved in a number of online communities and networking groups, I was getting almost hourly email updates this week from the National Association of Realtors, investor groups, builders, mortgage companies, as well as my local congressperson, US Senators and even a note from the President himself! (electronic, of course, but I'm sure he wrote it for me...)

In short form, here’s how the tax credit idea evolved:

Last year’s Housing Recovery Act included a provision which offered a refundable, repayable $7,500 tax credit to first-time buyers who purchased a home between April 9, 2008 and June 30, 2009. The credit was limited to those who had not purchased a home in the past three years and actually served as more of an “interest-free loan”, as the credit had to be paid back by the taxpayer in 15 installments of $500, beginning with the 2010 tax year.

The House version of the Economic Stimulus bill extended the existing credit out to the end of 2009 and forgave the repayment requirement, while the Senate’s version when much further, doubling the credit to $15,000 and making it available to all homebuyers purchasing a principal residence.

Sparks shot in all directions throughout the week as interest groups clamoured for a larger piece of the biggest pie ever baked by the US government.

In the end, the committee which negotiates out the differences between the House and Senate drafts of the bill settled on $8,000 for first-time buyers, eliminating the repayment clause and extending the credit through December 1, 2009.

So, in summary, the tax credit provision remained only for first-time buyers, but was increased to $8,000, made non-repayable, and extended to December 1. Those who purchased last year will remain bound by the terms of the original first-time buyers credit.

While some are disappointed that the full $15,000 tax credit did not end up in the final bill, the reality is that the new credit is larger and better than the old credit, and it will be around longer than in the original Housing Recovery bill from last year.

The biggest payoffs for those in Colorado, as I see it, are obviously for first-time buyers... but also for private sellers with homes under $250,000, where most first-time buyers will focus their interests.

Earlier this week, I posted about how strong the market was in January for homes at the lower price points, and how about one in 3 homes on the market under $250,000 is already under contract.

In the end, these changes should give our market a good, solid dose of adrenaline, especially at the lower price points.

If you or someone you know is interested in taking advantage the $8,000 first-time buyer tax credit, please give me a call.

CHASE, CITI, B OF A AND WELLS FARGO SUSPEND FORECLOSURES

While the government's wheels are in motion, the foreclosure train has stopped again.

JP Morgan Chase, Citigroup, Bank of America (Countrywide) and Wells Fargo have all announced that they will suspend foreclosures through March 6 as the government works on another "financial stability" (i.e. bailout) bill aimed at keeping people in their homes.

I'll be brief and to the point: the reason this is happening, in my opinion, is not because the banks are good-hearted Samaritans. They are suspending foreclosures again because their hope is to sell these junk loans to the government at a better price than they would get by foreclosing.

In other words, they want to transfer their losses to you and me.

I have many buyers with an interest in foreclosures right now, and we have been seeing this "stop-start" process since November, as banks suspend normal operations in hopes of offloading these bad loans to the government.

I won't attach a judgement to it here, other than to say it's really messing with the market. We've got people ready, willing and able to buy these homes and improve them, but the inventory is so (artificially) limited that buyers get frustrated.

Sooner or later, most of these bad loans will be foreclosed on... and most likely it will be taxpayers who take the hit.

DENVER MARKET UPDATE - UP OR DOWN?

Opinions on the stock market are bound only by the number of people you ask. Same with housing.

Last month, the number of homes on the market fell 19.4% from January of 2008.

The "absorption rate", or the number of months it would take to sell all homes on the market at the current pace of sales if no new homes were to come on the market, fell by over two months, to just over a six-month supply of homes.

The absorption rate for homes priced between $250,000 and $400,000 fell from 12.6 months to 7.0 months. Inventory for homes from $0-$250,000 fell from 4.22 months to 3.25 months.

Among all homes on the market priced between $0-$250,000, one in three is under contract.

So, of course, the Rocky Mountain News headline writer gleefully proclaims: "Worst January Ever for Home Sales"

Say what?????

The Rocky based its story on the fact that sales volume was down 15% in January versus one year earlier (but remember, the inventory of homes is down 20%). The paper also said the median price fell 16.3%, to $181,500. While that's accurate, remember that median is simply that price where half of the homes sell for more, and half sell for less.

What's selling right now? Homes below $200,000. In fact, nearly 70% of all pending contracts at the moment are on homes priced below $250,000. Homes below $250,000 account for 34% of the active inventory but two-thirds of all sales.

Of course the median price is going to drop!!!

I can't change how news is reported, but I can educate my clients about the state of our market. I have very strong beliefs about what lies ahead for our market, and some of those beliefs aren't necessarily great for folks trying to sell higher-end homes.

But I can tell you where the value is. I can tell you where the activity is. And I can tell you why it's happening.

The quality of your outcomes (and your life, for that matter) is based on the quality of your information. I would be happy to consult with anyone looking to buy or sell a home in this market, and give you a much clearer picture of what is really happening underneath the headlines.

RULE CHANGE FAVORS INVESTORS

If you read what’s being said on the many forums and posting boards online about the housing market, you hear a lot of different things about real estate investors.

Some say investors over-speculated in certains market, causing declines and foreclosures. Others say investors are an important part of the solution, since they have the expertise and stomach to purchase and rehab distressed bank-owned inventory that is otherwise passed by.

In response to the first line of thinking, Fannie Mae slapped a four-property restriction on investors in December that caused outrage in the investor market. Thinking that too much investing was a bad thing, regulators said that Fannie would not purchase any loans made to investors with more than four homes in their portfolio.

This week, Fannie reversed itself, sort of.

At the urging of NAR, investor groups and even local community activists, Fannie Mae revised its policy last week which opens the doors for investors to own up to 10 properties, but with stricter qualifying guidelines after the fourth property.

Now, for homes five through 10, borrowers must have a credit score of at least 720. The maximum loan-to-value ratio is 70% or 75%, depending on specified criteria. Borrowers may not have any history of bankruptcy or foreclosure in the past 7 years, or any mortgage delinquencies of 30 days or greater within the past 12 months. Reserve and other requirements also apply.

It’s a good “middle ground” step to get investors back into market while ensuring there isn’t excessive speculation.The recovery taking place in our market is demand driven, and that demand will be further fueled in coming months by discounted prices, tax incentives and a committed “buy-in” from the investor community.

Fannie did the right thing in welcoming investors back into the fold.