By Dave Kansas, Wall Street Journal | Real Estate

Some people think it’s a good time to buy a house. Is it?

In the past few weeks, home-sales data have perked up from very low levels. At the same time, home prices continue to fall in most parts of the country and mortgage rates, while ticking up, are at remarkably low levels.

All these data raise an intriguing question: Is now a good time to purchase a home?

It’s important to address the salient caveats. First, we are extremely unlikely to return to the boom-boom era of home investing reached earlier in this decade when prices soared 20% and more per year. Long-run historical data indicate that homes generally match the inflationary trend, rising about 3% a year.

Buy Carefully

Second, this is not the time to take aggressive action. Borrowing too much or utilizing gimmicky mortgages are what got too many people into trouble in recent years. Investing in a home, like investing in the stock market, should be approached prudently. You should be prepared to put at least 20% down and your budget should account for monthly mortgage and principle payments.

• The importance of the down payment is that it gives you an equity “buffer” in case home prices should continue to decline after your purchase, which may be the case in many communities this year.

One reason to think seriously about a home purchase is the mild revival in real-estate data. According to the National Association of Realtors, new-home sales rose 5.1% in February. The Commerce Department reported that new-home sales gained 4.7% in the same period.

• The pop in sales activity, which is coming from very low levels and remains fairly weak, is being driven in large part by falling prices. The Case-Shiller Home Price Index for January fell 19% year-over-year. The Commerce Department reported similar drops for new-home sale prices.

The fall in prices and the rise in sales activity is a good thing. It shows that buyers and sellers are starting to agree more and more often on a price. When prices start declining, sellers will hesitate, hoping that the market will rebound. This hesitation has evaporated as prices have continued to fall. The uptick in sales amid falling prices shows that the market is beginning to work once again, which is usually an early indication that a bottom in prices is starting to form.

Don’t Hunt for the Bottom

Some prospective homebuyers naturally want to know when prices will actually hit bottom. Pinpointing a bottom in home prices, however, is very difficult, akin to picking the bottom in the stock market. But data and research indicate we’re getting close.

• A recent report from Banc of America Securities-Merrill Lynch argues that the housing market could start to demonstrate modest growth and improvement later this year. This forecast relies on long-term mortgage rates continuing to decline. It also notes that a weak job market will hamper growth in housing.

• Mortgage rates are a key element to buying a home since lower rates make it cheaper to finance your home purchase. Last week, Freddie Mac 30-year mortgage rates ticked up to 4.87%. Merrill Lynch predicts that the Federal Reserve, through the purchase of long-term Treasurys and other tactics, will drive 30-year mortgage rates to 4.2% by year end.

If you believe now is a good time to buy a home and your lifestyle and budget support such a choice, there are a few strategies to consider in order to get the best price.

• Know what you want. This requires doing the requisite amount of research so you know exactly what you want and what you can afford. Once that’s done, being ready to buy quickly can help you drive a good hard bargain.

• Be ready to pounce. Cash, of course, is king. If you can write a check for a home, you can drive a very tough bargain in a world of eager sellers. Not everyone has that kind of kitty, so the next best thing is having a pre-approved mortgage. Many sellers are looking to close a deal smoothly and quickly, so having everything lined up ahead of time can strengthen your negotiating position.

• Negotiate closing costs. Having the seller handle all closing costs can knock a bit off the sale price. It’s a buyer’s market; fight for this.

• Get an inspection. And make the sale contingent on what you learn. Then renegotiate to lower the price. At the least, make sure that the seller is responsible for all inspection-related improvements.

If acquiring a home is starting to look more interesting, be careful not to confuse buying a house with investing in the real-estate market, whether as a landlord, a property speculator or a stock investor buying homebuilder stocks or real-estate investment trusts.

Real-estate investing can still be pretty dicey in the current market. There may — or may not — be money to be made. But buying a home is all about providing a place for you and your family to live. And as home prices settle at lower levels, you just might become a homeowner much more economically than anyone has in a long time.

Reprint of article by Amy Hoak, MarketWatch

CHICAGO — Many of this year’s first-time home buyers will get an extra perk: a tax credit of up to $8,000 that can be claimed on their 2008 taxes. The option to claim the credit now instead of next year puts cash in the hands of eligible buyers soon after they’ve committed to one of the biggest purchases they’ll ever make.

To get the funds as soon as possible, those who have already bought in 2009 have it easy: They simply claim the purchase when doing their 2008 taxes this season. It’s a refundable credit, so after it’s applied to any taxes due, taxpayers get a check for the remainder.

But if you haven’t closed on a home yet — and intend to before Dec. 1 — you have a few options to claim the credit:

• File an extension: This is the speediest way to get your refund, said Ed Smith, a partner in the Boston office of BDO Seidman. An extension gives taxpayers until Oct. 15 to file. If they file electronically, they can receive their refund within 10 days if they use direct deposit, according to the Internal Revenue Service. Remember, even when you get an extension, any taxes owed must be paid by April 15. “If you underestimate, you could be faced with interest and penalties,” said Mark Luscombe, principal tax analyst at CCH, a provider of tax, accounting and audit information, based in Riverwoods, Ill.

• Amend your return: If you’ve already filed your taxes for 2008 and then purchase a home this year, it isn’t too late to claim the credit for 2008. Those planning on buying a home soon can file an amended return later, after the purchase. But prepare to wait longer for your funds to arrive, Smith said.

• Wait until next year: You can also wait to claim the credit on your 2009 taxes. In some scenarios, it might make more sense to wait. For instance, if your income makes you ineligible for the full credit in 2008, but you’re going to make less in 2009, it’s worth it to use the credit on your 2009 return. “If your [household] income was too high in 2008, but one person had their job cut… you might qualify in 2009,” Smith said.
With this credit, eligible homeowners can claim 10% of the purchase price of the home, up to $8,000, or $4,000 for married individuals filing separately. See form 5405 on IRS.gov.

Unlike the previous home-buyer tax credit in effect for people who bought a home in 2008, the one outlined in the American Recovery and Reinvestment Act of 2009 doesn’t have to be paid back over time. “Before, it was an interest-free loan. Now it can be a real savings,” Smith said.

Do you qualify?

As of March 6, almost 568,000 tax returns claimed a first-time home buyer credit, totaling more than $3.9 billion of the $13.6 billion allotted for the program, according to the Treasury Inspector General for Tax Administration, which audits the IRS.

The 2008 form for the credit is both for people who bought in 2008 (and are eligible for the credit that needs to be repaid) and those who bought in 2009 (and don’t have to repay the credit).

Not all of those claims will be honored.

“For 38,158 of the 567,685 claims, we identified that the taxpayer may have had ownership in a personal residence within the last 3 years, which disqualifies the first-time home buyer credit claim,” the Treasury Inspector General said in a report on the 2009 filing season.

To qualify for the credit:

• A homeowner must not have owned a principal residence in at least three years.

• For married taxpayers, both spouses must not have owned a home in the previous three years. “If one spouse wouldn’t qualify, then neither qualifies,” Luscombe said.

• The amount of the credit starts phasing out for taxpayers who have a modified adjusted gross income of more than $75,000, or $150,000 for joint filers.

• But the credit is reduced to zero when modified adjusted gross income reaches $95,000, or $170,000 for joint filers.

• The home must be the taxpayer’s primary residence.

• The taxpayer can’t acquire the new home from a relative, including a spouse, parents, grandparents, children or grandchildren.

Frequently asked questions about the tax credit can be found at the National Association of Realtors’ and the National Association of Home Builders’ Web sites. See NAR’s site. See NAHB’s FederalHousingTaxCredit.com. Also, visit the IRS’s first-time home-buyer page.
Pay back

Remember that if you bought a home between April 8, 2008 and Dec. 31, 2008, you’re only eligible for the previous tax credit — one that will require you repay the government over the course of 15 years.

New homeowner Steve Cline, for example, bought his Etters, Penn. home in 2008 and is getting a $7,500 credit that has to be paid back. In hindsight, he wishes he would have waited several more months to buy his home. And he’s certainly not alone.

But even if you bought in 2009, there’s a chance you’d also have to pay the credit back. According to the IRS, if you sell your home in three years or less after the date it was purchased, some or all of the credit has to be paid back at the time of sale.

If you work with a tax adviser and will owe funds due to the sale of your home, it’s probably best to get in touch with that adviser as soon as the sale closes, said Cynthia Jeanguenat, an enrolled agent in Virginia Beach, Va.

“Let them know what is happening in your life so you know where you stand before next tax season,” she said.

Copyright © 2009 MarketWatch, Inc.

Rates on 30-year mortgages fell recently to the lowest level on record after the Federal Reserve launched a new effort to stimulate the struggling U.S. housing market.

Mortgage finance giant Freddie Mac said Thursday that average rates on 30-year fixed-rate mortgages dropped to 4.85% last week, from 4.98% the previous week. This was the lowest in the history of Freddie Mac’s survey, which dates back to 1971, and was down a full percentage point from a year ago. These are truly historic times and they present a great opportunity to anyone who is thinking of buying.

If you, or someone you know, is ready to take advantage of historic low prices and historically low interest rates, please call me toll-free (1-888-494-8654) or email me your referral.

2009 is a great year to buy real estate in Myrtle Beach. Don’t let this opportunity pass you by.