Making home ownership more affordable
There’s always an upside to every downside, and although the economy has been in free fall for almost a year experiencing high rates of job loss and foreclosures, there are still things to celebrate.
According to the first quarter Housing Opportunity Index compiled by the National Association of Homebuilders and Wells Fargo Bank, U..S., home prices are their most affordable in 18 years. To be designated affordable, a family making the median national income of $64,000 must be able to buy the property and devote no more than 28 percent of its income toward housing costs. This translated into nearly 73 percent of all homes sold in the United States during the first three months of 2009 being considered affordable, the highest percentage ever reported since this study has been done.
The country’s big cities, defined as 500,000 population or more, were calculated for most and least affordable. Indianapolis, Ind., with 95 percent of homes sold deemed affordable, came in first as the most affordable city. The next four affordable cities were Youngstown, Ohio, Akron, Ohio, Grand Rapids, Mich., and Syracuse, N. Y.
The least affordable city, with only 21 percent of homes sold considered affordable, was White Plains, N. Y. This was followed by San Francisco, Calif., Los Angeles, Calif., Nassau/Suffolk counties, N. Y., and Honolulu, Hawaii. I guess if you want to live near either the Atlantic or Pacific oceans, it’s going to cost you.
Homeownership is more affordable because of low interest rates and an $8,000 federal tax credit for first-time homebuyers, individuals who have not owned a home during the past three years. As previously stated in this column, the first-time homebuyer tax credit provides a refundable credit of 10 percent of the home’s purchase price up to a maximum credit of $8,000. You must live in the home for at least three years in order for the credit not to be repaid. In addition there are income limits, and the credit cannot be claimed until the purchase is final.
The IRS expanded this program with an announcement that taxpayers who qualify for the first-time homebuyer tax credit on a home purchased from Jan. 1, 2009, through Nov. 30, 2009, may claim the credit on either their 2008 income tax return, which is filed this year or on their 2009 tax return due April 15, 2010. If you buy a home after filing your 2008 tax return, you may amend the return and get the credit sooner. There is also a first-time home purchase tax credit available for homes purchased from April 9, 2008, through Dec. 31, 2008. This credit is up to $7,500, however, it must be repaid in 15 equal installments beginning with the 2010 tax year. Amended tax returns can be submitted if this credit was not taken.
If low housing prices, low interest rates and tax credits aren’t enough incentive to convince you that homeownership is very affordable, there are always new energy tax credits to take advantage of that can result in substantial savings to homeowners.
You can qualify for a 30 percent tax credit up to a cap of $1,500 for improvements to your property. Qualifying improvements include insulation, exterior windows and doors, central air conditioning systems, water heaters and furnaces, electric heat pump water heaters, certain metal roofs and advanced main air circulating fans.
Renewable energy improvements such as solar hot water heaters, geothermal heat pumps and wind energy systems will also make you eligible for up to a 30 percent tax credit. Renewal energy credits are available for both primary and second homes. Be sure to consult a tax professional for confirmation and verification on all federal tax issues.
With the rain comes the rainbows and with the housing crisis comes the buying opportunities and affordability – the upside of the downside.