Good Thursday morning. It is a beautiful day in Georgia's Lake & Golf Country. It looks to be a great weekend here at the Lakes. The leaves are right in the peak of changing colors and all around the lakes are beautiful picturesque landscapes. A breathtaking sight, especially first thing in the morning or at sunset.
To abrutly change the topic. Many of my clients have been asking about the mortgage industry and the changes that have been implemented. For more on this I will turn to the senior loan officer at Lake Oconee Community Bank, Jeff Hancock.
Fed Cuts to Stimulate Economy
Happy November to you and let's all be thankful that the month of October is finally behind us! As we roll into November, the economic data points to an economy that is slowing sharply. To try to jump start things a bit, the Fed cut the target Fed Funds rate on Wednesday by one half point to 1.00%. The vote on this was unanimous and followed a coordinated half point rate cut on October 8th. Investors also believe the Fed's statement following the meeting last week left the door open for further rate cuts and, as a result, they have priced in another half point rate cut before the end of the year. Clearly, the Fed is preoccupied with boosting near-term economic growth. While their aggressive short-term stimulus is good for the stock market, mortgage investors are worried about its impact on long-term inflation, and those concerns helped pushed mortgage rates higher last week.
Typically, falling oil prices, subsiding inflation, and poor economic news lead to lower mortgage rates. However, recently, the opposite has been the case as mortgage rates have pushed higher. One of the major reasons for this is that investors, particularly important foreign investors, have been reluctant to invest in Fannie Mae and Freddie Mac mortgage backed securities. As of late, government officials have been sending mixed messages and raising some concern as to whether Fannie / Freddie will actually have the long-term backing of the government. Moving forward, if the government can unambiguously convince investors that it will stand behind the Fannie / Freddie guarantees, then mortgage rates surely will move lower.
To end on a positive note, the LIBOR rate index has been falling and is now at the lowest level since mid-September. A fall in the LIBOR indicates that banks are more willing to lend to one another, which is what the Bailout Plan was designed to do. As crazy as the month of October was, let's not lose sight that the stock market did actually finish the month on a positive note last week as the DOW surged 889 points on Tuesday. Some analysts believe the market is showing signs of bottoming out. Let's hope they are right!
In other news last week:
- September New Home Sales increased 3% from August and inventories declined
- 3-month LIBOR rates fell to 3.0% from a recent peak of 5.0%
- Major US stock indexes rose about 10% last week
- Average gas prices fell to $2.50 per gallon, even lower than the $2.90 seen one year ago
Time Is Running Out on the $7500 Tax Credit
Created as part of the Housing and Economic Recovery Act of 2008, the tax credit was enacted in July of this year to encourage home buying and help you generate some sells. It is only temporary and you should market it for all it's worth over the months ahead. Retroactive to homes bought on or after April 9, 2008, the tax credit will expire in July, 2009. Here are the nuts and bolts you need to know about the credit:
How does it work?
The tax credit is actually a 15 year interest-free loan where the buyer will repay 1/15th of the loan each year via a tax credit against any Federal income taxes owed. Thus, with a $7500 limit, the maximum payment each year would be $500. The repayment begins two years after the credit is taken. Furthermore, if the homeowner sells the home during the 15 year period, he/she has to repay the balance of the loan from the profit of the home sale (if there is insufficient profit, then the remaining payback would be forgiven).
What's so great about a tax credit?
A tax credit is more valuable than a tax deduction, but most people don't know there's even a difference. A tax credit reduces the actual amount of tax due. A tax deduction only reduces the amount of taxable income. For example, if your client owed $3,000 in taxes for 2008, but qualified for the full $7,500 tax credit, it would cancel the entire amount he owes and still leave $4,500 which he would receive as a tax refund!
Who qualifies for the tax credit?
The credit is for first-time home buyers as well as anyone who hasn't owned a home in the past three years that can meet the income requirements. Single taxpayers can claim the full credit with incomes up to $75,000 and married couples up to $150,000. This credit is available for owner-occupied U.S. properties.
How much is the tax credit?
The tax credit goes up to 10% of the purchase price of a new or existing home up to a limit of $7,500.
As always I will I encourage all inquiries and may be contacted at 404-272-8037, bradwarnock@remax.net or through my website www.BeAtTheLake.com. Warmest Regards- Brad
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