Housing Market Is ImprovingHousing Market Is Improving

The jump in housing sales of 5.6% in February shows continuing improvement in the overall housing market. This data should come as no surprise as we have had improving sales numbers and a reduction in housing inventories since October 2008. The numerous government actions to inject capital into the credit system and tremendous incentives from government should help increase house sales further.

Certainly the best opportunity to buy a home is for first time home buyers. First time home buyers, earning less then $75,000 individual or $150,000 as a couple, can qualify for a tax credit of 10% of the purchase price, up to $8,000, for a 2009 home purchase. This tax credit can be used to reduce the tax obligations of a qualified home buyer dollar for dollar. This means that the tax credit can be applied as payment towards any tax liability owed and if there is no tax liability the credit will be paid as a tax refund. For example, say a qualified first time home buyer, owes $4,000 on their 2009 tax return, this tax credit can be applied as payment for this amount and the balance would be sent in the form of a tax refund. In comparison a tax deduction would only reduce tax obligations by the percentage equal to the tax bracket filed under. An $8,000 tax deduction would give a $1,200 reduction in taxes owed using the 15% tax bracket.

In some cases this first time home buyer credit can be combined with other programs such as California’s state incentive to provide 5% of the home purchase price up to $10,000. As well, the federal tax incentive can be combined with a home bought using a Mortgage Revenue Bond, without penalty.

No matter if you are a first time home buyer or living in your umpteenth home, the new incentives will help all homeowners. Through tax incentives, the government actions to stabilize the banking system and the huge amounts of capital being injected into the credit system we should see housing prices normalize and consumer confidence return.