While the first time home buyer tax credit is a distant memory to most, there are certain groups who can still use the program.

For certain members of the uniformed services, members of the Foreign Service, and intelligence community employees who served at least 90 days of qualified, extended duty service outside of the United States between January 1, 2009 and April 30, 2010.  Spouses of persons meeting the above criteria are eligible as well.

Basically, for those who were serving the country on foreign soil during the time of the last tax credit, they have until April 30, 2011 to use “last year’s” credit.

A quick reminder, it is $8,000 for first-time home buyers, $6,500 for repeat buyers.  An existing home owner must have lived in their “main home” in five of the last eight years to be eligible.

Like last year’s credit, you must be under contract on or before April 30, 2011 and close on or before June 30, 2011.  Those are hard dates with no exceptions from the IRS.

Other eligibility criteria include:

• The home may not be purchased from a parent, spouse, or child
• The home may not be purchased from an entity in which the seller is a majority owner
• The home may not be acquired by gift or inheritance
• Each buyer must meet tax credit eligibility standards
• The home sale price may not exceed $800,000
• Buyers may not earn more than $125,000 as single-filers; $225,000 as joint-filers

The complete program description is published on the IRS website.

The big one…this is a tax credit, not a tax deduction.  Credits have a dollar-for-dollar impact on your refund or liability.  If you normally get $2,000 back, you’d get $10,000 back.   If you normally owe $8,000, you’d owe $0.  Credits are about 3-5 times as good as a deduction depending on your tax bracket.

Personally, I’d call a tax professional.  Between the first time home buyer tax credit, transaction related deductions, and the itemization of mortgage interest, it’s well worth the investment.

For additional information regarding your tax credit eligibility, call an accountant. Speaking with a tax professional is often worth the cost.

After the first time home buyer tax credit expired last year, home sales dropped as would be expected.  From mid-year right through the close of 2010, the housing market was on the rebound. 

The National Association of REALTORS® released their January report showing a 3% drop and made a downward revision of December’s figures. 

As always, national data pretty limited in its ability to help you figure out the housing market on a neighborhood-by-neighborhood level.  NAR gets a little better and releases a regional report.  That looked like this:

• Northeast Region: -2.4%
• Midwest Region : -7.3%
• South Region : +1.4%
• West Region : -5.2%

Even this is too broad to help figure out the actual supply and demand of Wicker Park v. Lincoln Park, but it’s an improvement.   Real estate data must be local to be relevant.

Realistically, a home buyer shouldn’t look at this slight pullback in demand for too long.   Shop while this data is in the minds of sellers.  It won’t likely last. 

The weather was awful nearly from coast-to-coast in the past two months.  Bad weather delays purchases.  It doesn’t remove those buyers permanently.  If you look at the six-month moving average of Pending Home Sales, it would appear that we should have pent-up demand hitting the market in spring.  If that’s the case, then the buyer who waits for perfect weather to write a contract may end up with a less-than-perfect negotiating position.

An “existing home” is one that has been previously occupied.  The remaining homes are covered on the New Home Sales report.

The number of existing homes sold in the prior 12 months is now at its highest point since May of 2010, the month before the end of the first time home buyer credit.  The May 2010 report would have also included the other first time home buyer tax credit that expired in late 2009 and buoyed that fall market.

We’re also up almost 40% since the dismal month of July after the tax credit ended.  The current numbers are the real housing market, not temporary federal stimulus markets.

When sales increase, supply decreases.  Housing supply is measured in months and answers the question “at the current rate of sales, how fast would we run out of homes?”

In the past 2 years, the average has been 9 months.  In July of 2010, we were over 12 months.

Currently, we’re down to 7.6 months.  The total home resale inventory is down to just 3.38 million homes.  We’re also not even yet into the traditionally busy spring markets.

The breakdown of purchases by the type of buyer:

• First-time buyers accounted for 29% of purchases, down from 33% in January
• Repeat homebuyers accounted for 48% of purchases, up from 47% in January
• Investors accounted for 23% of of purchases, up from 20% in January

With supplies falling and the repeat buyers beginning to dominate the market, the forecasts are for rising home prices in the coming months.

Another great report for the housing market today. 

Today’s release was the Pending Home Sales Index.  It shows a 2% jump in December according to the National Association of REALTORS®. A “pending home sale” is an existing home under contract to sell, but not yet closed.

This is now five out of six months with an increase and it puts us at the highest levels since the expiration of the first time home buyer tax credit in April.

Combine this data with December’s Existing Homes Sales report (+12%) and New Home Sales report (+17%), this is a recovery for housing.   In a closely related figure, consumer confidence is at an 8-month high.

As always, there are variances by region.  In this case, big variances.  We’re seeing a slowdown in the West, significant and continued growth in the South.  Here is the data:

• Northeast Region: +1.8%
• Midwest Region : +8.0%
• South Region : +11.5%
• West Region : -13.2%

Home buyers should keep an eye on these reports.  They offer insight about what spring should be like. We know that 80% of the pending sales will close within 60 days.  With a reasonable level of confidence, we can assert that home sales in February and March will be higher.  Since home supply is dipping, the battle between supply and demand is starting to shift to the advantage of the seller.  That presses home prices up.

And then the bad part…it’s also tied to the economy.  Mortgage rates get their direction, in a large part, from the overall economy.  As mortgage rates move higher, home affordability goes lower.  Coupled with rising home demand, your dollar won’t buy as much in the second half of 2011 if these trends hold true.

November’s Pending Home Sales Index from the National Association of REALTORS® shows a 3% gain over October.  A “pending home sale” is a home under contract, but not yet closed.  We’re continuing to recover from the hangover of April 2010′s first time home buyer tax credit expiration. 

The very logical theory presented by every economist and yours truly is that the April expiration helped accelerate sales forward that would have otherwise closed over the summer.  This theory is buoyed by Home Buyer Tax Credits I & II as well as the Cash for Clunkers program.  These stimuli have had the effect of simply getting people to buy sooner, not necessarily getting new people to buy. 

If that is the case, the two spikes in the Pending Homes Sales graph are the expirations of Home Buyer Tax Credits II and III.  Assuming that the 2009 credit and the 2010 credit were both pulling from the traditional “warm month” home purchases, it appears that housing has rebuilt a strong foundation of buyers and has been pretty steady over the past year.

As was to be expected, the surges near the time of the tax credit expirations were dominated by first time purchasers.  These most recent figures have shown strong growth in the repeat, or upgrade, buyer market.  

Home values follow from supply and demand.   We’re seeing buyer traffic and clearly they’re writing contracts.  We’re seeing home supply dwindle lower.   This looks good for home values. 

The only question not yet answered is the “shadow inventory” from all of the old foreclosures.   The theory from the “shadow inventory” folks is that the banks will eventually try and simultaneously sell all of their real estate, thus crushing home values.  If they did flood the market at once, it is logical that home prices would fall. 

The theory from foreclosure tracking firm, RealtyTrac, is that the banks will logically be more strategic and slowly sell their assets so that they don’t undercut their own values on the books.  I tend to side with RealtyTrac.

Barring any massive changes, housing looks as healthy as it has in quite a few years. 

Low mortgage rates and low home prices have spurred buyers back into action.  A “pending home sale” is an existing home under contract to sell, but not yet closed.

What is notable right now is that we’re back to our highest levels since April–the deadline for the first time home buyer tax credit.  What’s really notable is that we have buyers buying based on the fundamentals of home affordability as opposed to the carrot of an $8,000 tax credit. 

It also explains why builder confidence continues to rise in spite of the fact that the New Home Sales report was soft.   Builder confidence is heavily weighted on not only sales, but also foot traffic and six month projections.  The builders, the people with skin in the game, see things getting better.

As always, real estate is local.  Regionally speaking, the Midwest saw the biggest pop from September to October.  By region:

• Midwest Region : +27.3%
• Northeast Region: +19.6%
• South Region : +7.1%
• West Region : -0.4%

The Pending Home Sales Index is a reasonably good forecast of the Existing Home Sales figure in November and December.  Roughly 80% of homes under contract close within 60 days according to the National Association of Realtors.

Put simply, the housing market is heating up.   Similar to April when Realtors were complaining about a shortage of well-conditioned, well-maintained homes, we’re seeing it again.  A shortage of desireable homes significantly reduces buyer leverage in negotiations. 

When is this a problem?  When you’re shopping when other buyers are as well.  A great example is spring.  There is nothing that reduces negotiating power than multiple offers, so why would you want to shop when other people are?

Roses in July are less expensive than roses in February.  It’s simple supply and demand.  Same deal with homes.

Talk to your real estate agent now if you’re thinking about buying in 2011.  The smartest move might be to buy before another offer starts driving up the price on your dream home. 

A “pending home” is an existing home under contract to sell, but not yet closed.

At the time of the plunge in pending sales in April, it appeared that the main catalyst was the first time home buyer tax credit’s “stimulus” on sales.  What happened, similar to Cash for Clunkers, was that a lot of transactions were pushed forward.  So, that couple that would have purchased in the later part of the summer had an incentive to purchase earlier, thus creating the surge in contracts pre-expiration and ensuing hangover in sales post-expiration.

According to the National Association of REALTORS®, 4 out of 5 pending homes close within 60 days, and many more close within 90 days.  The Pending Home Sales Index is an excellent forward-indicator for housing sales in the next three months.

For example:  After July’s 27% plunge in Existing Home Sales, they recovered in August.  This was no surprise as the July Pending Home Sales Index predicted it.

Region-by-region, the Pending Home Sales Index varied in August, suggesting better sales levels in the South and West markets:

• Northeast : -2.9% from July
• Midwest : +2.1% from July
• South : +6.7% from July
• West : + 6.4% from July

That said, real estate markets aren’t “regional” — they’re local.   Housing data for even “Chicago” isn’t granular enough, let alone a category like “Midwest.”  Real estate  hyper local.

Still, we’re seeing more buyers drawn into housing with low mortgage rates, affordable homes, and a supply that is increasingly seeing the “good homes” go quickly.   Since the alternative is to buy the leftover home in spring and possibly at higher rates, it appears that we’re looking at a relatively busy fall purchase market.

This data is from the July Pending Home Sales Index, published by the National Association of Realtors®.

A “pending home sale” is a home under contract, but not yet closed.  Historically, 80% of such homes close within 60 days which makes the report an excellent, forward-looking indicator for the real estate market.

We see this connection in May Pending Home Sales report (dismal) and the July New and Existing Home Sales reports.  How close?  The Pending Home Sales report dropped 30% in May.  Existing Home Sales dropped 29% in July.

That’s a strong correlation.

In fairness, the numbers are still low.  The Pending Home Sales Index is still the second-lowest on record and is not a good number.  Again, this market is not about whether things are absolutely great, it is a matter of whether things are strong relative to the worst-case scenario.

For at least the next month or two, the single-driving factor to mortgage rates is whether things are absolutely worst-case or anything better.  If the economy, housing, and everything else falls apart, mortgage rates are priced for that and will remain steady.  An iota of recovery could mean many iotas of rate increases.

Given this month’s results on the Pending Home Sales report, September’s Existing Home Sales report should show a similar tick up.

Yesterday’s post addressed the fact that home loan approvals are getting easier.   (Full Article:  Home Loan Approvals Getting Easier ) Mortgage rates are at their lowest levels in history.  Home prices, while recovering, still sit well below their April 2007 highs.

Now, soft home sales data just strengthened the buyer’s negotiating power a little further.  The National Association of Realtors®’ Existing Home Sales report showed that the number of resales plunged by 1.4 million units in July.

The national data is a 27% drop from last month and now puts single-family home resales at their lowest levels since May 1999.  Nationally, the drop in sales means that the inventory has increased.   At the current pace, it would take 12.5 months for the inventory to be absorbed.

Compare that to just 8.9 months of inventory as of last month.

Of course, real estate is always local.   Real estate will vary from Wrigleyville to Andersonville, from Wicker Park to Lincoln Park.  Seller sentiment; however, isn’t as hyper-local.  It’s more CNN-based than reality-based.

Sellers were happy a few months ago.  The first half of this year saw stimulus-driven buyers all trying to identify and close properties at the same time.  Sellers had it made the day before the first time home buyer tax credit expired.   What we’re seeing now is a natural slow down.  So many buyers accelerated their purchases into spring that the tax credit had a short-term effect of increasing home values by the $8,000 tax credit.

In the broad sense, home values will influence how much you pay for your home.  In reality, when a buyer and seller are $5,000 apart, the prevailing news determines who blinks first at the negotiating table.  It looks like the sellers are under more pressure than the buyers right now.

The main reason to buy today is not home prices, but it is a nice plus.  Rates are down .75% since April.  Every .125% in mortgage rate has the same financial impact as roughly a 1.5% change in home price.  While home prices have risen modestly, rates are lower to the tune of six of those .125%’s—in terms of home affordability, that’s the equivalent of roughly a 9% change in home prices.