Category — Market Update

President Barack Obama has approved the first-time homebuyer tax credit extension which will extend the tax credit until April 30, 2010.

The extension is part of a $24 billion economic stimulus bill that will extend the $8,000 tax credit for homebuyers who are purchasing their first home from the current November 30 deadline and expands the program to offer a credit of $6,500 to homeowners who have lived in their current home for at least five years and are seeking to relocate.

The following details apply to the homebuyer tax credit expansion:

Who is Eligible
-First-time homebuyers, who are defined by the law as buyers who have not owned a principal residence during the three-year period prior to the purchase, may be eligible for up to an $8,000 tax credit.
-Existing homeowners who have been residing in their principal residence for five consecutive years out of the last eight and are purchasing a home to be their principal residence (“repeat buyer”), may be eligible for up to a $6,500 tax credit.
-All U.S. citizens who file taxes are eligible to participate in the program.

Income Limits
Homebuyers who file as single or head-of-household taxpayers can claim the full credit ($8,000 for first-time buyers and $6,500 for repeat buyers) if their modified adjusted gross income (MAGI) is less than $125,000.
-For married couples filing a joint return, the combined income limit is $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.
-The credit is not available for single taxpayers whose MAGI is greater than $145,000 and married couples with a MAGI that exceeds $245,000.

Effective Dates
-The eligibility period for the tax credit is for homes purchased after Nov. 6, 2009, and before May 1, 2010. However, home purchases subject to a binding sales contract signed by April 30, 2010, will qualify for the tax credit provided closing occurs prior to July 1, 2010.

Types of Homes that Qualify
-All homes with a purchase price of less than $800,000 qualify, including newly-constructed or resale, and single-family detached, townhomes or condominiums, provided that the home will be used as their principal residence. Vacation home and rental property purchases do NOT qualify.

Tax Credit is Refundable
-A refundable credit means that 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 who qualifies for the full $8,000 credit who owes $5,000 in federal income taxes would pay nothing to the IRS and receive a $3,000 payment from the government. If you are due to receive a $1,000 refund, you would receive $9,000 ($1,000 plus the $8,000 first-time homebuyer tax credit).
-A repeat buyer who owes $5,000 would pay nothing to the IRS and receive $1,500 back from the government. If you are due to get a $1,000 refund, you would get $7,500 ($1,000 plus the $6,500 repeat buyer tax credit).
-All qualified homebuyers can take the tax credit on their 2009 or 2010 income tax return.

Payback Provisions
The tax credit is a true credit. It does not have to be repaid unless the home owner sells or stops using the home as their principal residence within three years after the purchase.

The www.federalhousingtaxcredit.com site is being updated. Check the site next week for more detailed information on the new tax credit.

For more information, visit www.nahb.org.

After two long years of recession, economists are beginning to see signs that the economy’s recovery is finally in sight. South Florida home sales are picking up, Wall Street has staged some solid rallies and even consumer confidence is rising.

But the road to recovery will be uneven. Economists say that an uptick in business spending will lead the way, followed by federal government stimulus projects that will create some jobs. Consumers, unfortunately, are likely to be the last to see good times return, because widespread unemployment – which is now just a notch below 10 percent – won’t start to go down until after the recovery is well under way.

It has been rough, but economists say it’s always that way for Florida.

“It performs better in good times, but during bad times, in recessions, it is one of the worst performing states in the nation,” said Moody’s Economy.com economist Chris Lafakis. “And during times of expansion it is one of the best.”

Some experts say they already see the early signs of such progress.

“The negative numbers just start getting smaller or they stop falling or they fall at a slower rate,” said SunTrust Chief Economist Gregory Miller. It’s like you tumbled out of a boat a while ago and “now we’re at the stage of swimming back to the surface.”

Other economists agree that the worst may be over as soon as this summer. Consumers surely have had enough, judging by the strong jump in Floridians’ consumer confidence this month.

Here’s how economists say the state will find its way out of the slump:

Business-led recovery

Economists say the recovery will begin with an increase in business capital spending, as companies rebuild inventories or upgrade technology or send business travelers back out on the road.

At some South Florida companies, capital spending already has increased and begun to pay off. Last year, Stress Free Corporate Housing, which provides temporary living arrangements for executives, says the audio-visual equipment it installed in its new Weston office is helping to bring in new business.

The firm wanted to hold employee conferences and save on travel expenses. But it also began using the equipment for Webinars – seminars via the Internet – for its clients.

President and Chief Executive Officer Darin Karp said his firm is about to sign a deal with a Fortune 500 company to provide temporary housing for executives from Asia and the Middle East who need to come to Florida for training.

“We’re definitely seeing glimmers of hope off the first quarter and the beginning of this quarter,” Karp said. “We have some big stuff on our plate, and it’s attributed to doing the Webinars.”

Stimulus spending

An increase in government spending is expected in the fourth quarter, as states and cities pump out the $787 billion in federal stimulus money to build roads and other projects. That influx of cash will lead to more jobs, at least in construction.

Even though the stimulus law was enacted in February, government is still crafting detailed plans and regulations for the federal package, so it’s unclear precisely how many millions will be earmarked for Florida.

“We will begin to see some impact of the stimulus legislation in the last quarter of this year,” said economist Antonio Villamil, dean of the School of Business at St. Thomas University.

Confidence rises

Consumer confidence – a measure of how willing people are to spend on big-ticket items – is already rising. The University of Florida consumer confidence survey issued earlier this week showed the index jumped to 71 in April, up from 65 in March, which is close to the low reached during the last recession in 1991.

The importance of the jump is that consumer confidence is a forward-looking economic indicator, one that is often a sign that consumer spending will rise, too.

Employment to lag

Employment rates aren’t expected to rise until recovery of other sectors is under way. Only after growth returns in the overall economy will businesses be comfortable enough to begin to create jobs again. Employment is key to consumers’ recovery. Don’t look for consumer spending to increase until after employment stabilizes, economists say.

“Every business cycle is unique, but they get going in fits and starts,” said economist Manuel Lasaga, president of Strategic Information Analysis in Miami. “This [recovery] will be weaker than normal.” Strong growth, he said, won’t appear until 2010.

And some sectors seem to be hurt so badly, their recovery is not at hand. Surely, housing remains deeply troubled. Manufacturing, too, is waiting for signs of recovery.

“We’re not seeing that [any increase in demand] yet frankly,” said Tom Kennedy, a CPA who is chairman of the South Florida Manufacturers Association. Kennedy is controller of R.L. Schreiber in Pompano Beach, which produces food products for the food service industry. The credit crunch, he said, is making the business environment even more difficult.

When will it end? The economy should begin to pull out of recession around the end of summer, according to several economists. At the latest, look for it early next year, others say.

“We are in the fourth phase of the recession,” said SunTrust’s Miller. That’s the pre-recovery phase, he said. Next is the turnaround.

It’s a little early yet, and the signs are still faint.

“You really have to look long and hard to find any signs of strength in the economy,” said Mark Vitner, Wachovia’s senior economist. “But it’s not so hard to find areas where the economy had been in a free fall and now is just merely declining.”

For those businesses looking forward to the turnaround, they’ve set their sights on year’s end.

“People are getting new budgets for purchasing at the end of the third quarter, the fourth quarter. A lot of lights are coming on,” said Joel Ledlow, chief executive officer of ScheduAll, a Hollywood firm that produces management software systems for broadcasters and media. “People are saying they have cut about as much as they can cut. Now they’re ready for some very strategic investments.”

Reprinted from Sun Sentinel

Federal Reserve Chairman Ben Bernanke said Tuesday that he expects the recession to end later this year and suggested an upcoming government report could increase confidence in the nation’s big banks.

But Bernanke also said major sectors of the economy remain weak, there will likely be “further sizable job losses,” and the recovery will be slow.

“We continue to expect economic activity to bottom out, then to turn up later this year,” he told the Joint Economic Committee of Congress.

He said he expects unemployment – at 8.5 percent in March – to peak early next year short of 10 percent, but it could stay high for a time.

Some economists have forecast a 10 percent jobless rate.

In February, the Fed chairman predicted a recovery later this year, but on Tuesday, he ticked off fresh signs to back that view. Consumer spending rose 2.2 percent in the first quarter after falling sharply the second half of 2008. And the housing market shows “signs of bottoming,” he said.

While businesses are swiftly liquidating inventories, hurting growth, Bernanke said that clears the way for increased production when demand rebounds. A key index released Tuesday showed service industries shrinking more slowly in April.

Bernanke’s earlier forecast “was much more sketchy,” says Brian Bethune, chief economist at IHS Global Insight.

Bernanke said the economy remains weak. Gross domestic product fell at an annual rate of more than 6 percent the past six months. “A relapse in financial conditions” could stall a recovery, he said.

Financial markets are nervously awaiting results of “stress tests” of 19 large banks.

The results, to be released after stock markets close Thursday, are expected to show whether they have enough capital to withstand a worsening economy.

Banks that need more cash will have six months to raise it before tapping government bailout money. A report from Friedman Billings Ramsey predicts at least 11 banks will need more funds.

Bernanke said many should be able to raise equity or use other means to increase their capital without getting more federal money and that he hopes the program “will restore confidence” in banks.

Some are skeptical. “A lot of people who participated when banks raised capital in the last year know what bad investments they turned out to be,” says Alan Villalon of First American Funds.

Reprinted from USAToday.com