If you’ve ever wondered why certain sellers (and buyers) need to close on a home before December 31st, here’s yet another good reason why. The latest gift to come out of Washington is the brand new rule that applies to widows and widowers selling real estate.  It used to be that a widow or widower had to sell a property in the year of the last jointly filed tax return if the survivor wished to exclude $500,000 from the paper profit on the sale.  This usually meant selling the home in the same year as the spouse’s death.  If the surviving spouse waited longer, he or she could only deduct $250,000 from the paper profit on the sale.

The new rule now allows widows and widowers to sell within two years of the death of a spouse.  It’s a good extension but it still requires widows and widowers to watch the clock.  I wish they’d made it three years instead of two, giving them more time to recover and make clear-headed decisions.  I’ve sold many homes for widows and widowers and it’s a very emotional process for them and you can just see that the weight of the world is on their shoulders. 

The Home Buyer Tax Credit

Another year end trick – if you qualify for the home buyer tax credit and close before December 31st – is to file and amended 2008 tax return and get your money back within weeks instead of waiting to file your 2009 returns.

To qualify for the home buyer tax credit, you must find a home for under $800,000 and be under contract by April 30, 2010 and close by June 30, 2010.  To be considered a first-time buyer, you must not have owned a home in the last 3 years and you may then take up to 10% of the value of the home capping at an $8,000 credit.  The benefit starts to phase out when your income reached $125,000 and is gone altogether when your income is $145,000.

If you already own a home, you must have lived there for 5 consecutive years of the last 8 and the credit begins to phase out when you earn $225,000 and disappear when you earn $245,000.  Your tax credit caps out at $6,500.

A Word on Interest Rates – and a Rant by Katie on Moving the Goal Posts

The Federal Reserve is keeping interest rates historically low – which are currently about 4.81 percent on a 30 year fixed loan.  With three more months left in the program to hold them down by buying massive amounts of mortgage-backed securities (1.25 Trillion) and debt ($175 Million) from our old friends at Fannie Mae and Freddie Mac, they may (repeat ‘may’) extend that program beyond March.

I hope they don’t do it and instead, end the program in March – as planned. Let me start my rant by saying that, in my opinion, Fannie Mae and Freddie Mac are just as equally responsible for the sub-prime crash as the diabolical knuckleheads who invented ‘credit default swap’ products.  Did you know that apparently 80% of the banks in the U.S. who underwrote home loans used Fannie Mae’s and Freddie Mac’s in house software program that gauged how much a buyer was able to spend and how likely he was to keep up his mortgage payments?  Yeah – that was them.  Good program, guys.  It would be funny if it weren’t so dangerous.  Before the crash, there was a very real ‘perception’ out there that Fannie Mae and Freddie Mac were government-controlled companies.  Of course now they are indeed controlled by the government due to their incompetency, but before the crash, they were not.  They were private institutions which received tremendous amounts of latitude from the U.S. government and were operated by highly paid corporate officers making enormous amounts of money. 

Since these institutions are now controlled by ‘the people’, we don’t want to punish them.  My reasoning for wanting the Fed to end the program on time comes from spending time with and talking to buyers and sellers all day long – and has to do with the old adage about moving the goal posts.  If these programs keep getting extended, sale prices will never hit their natural ‘bottom’.  Buyer’s still have a low sense of urgency and keep waiting for the ‘bottom’ of the market to come.  If the Fed keeps extending its program to keep rates down, buyers will feel even less urgency and home prices won’t hit bottom for another year or more.  It’s true that the program has been good for business but that’s because when it was announced, there was an end to it – a deadline – which made buyers feel urgency and drove them to act.  If the end date keeps changing  – and it drags on an on – then the very people it was designed to motivate will become unmotivated.

For a quick article on the interest rates and the economy, click on the link below.  And Happy Holidays everyone!

http://www.huffingtonpost.com/2009/12/16/fed-interest-rates-held-f_n_394798.html

The Montclair public school system is just buzzing with activity.  At the top of the agenda is the new Washington elementary school opening this September.  There has been much debate among residents, parents, students and educators as to how to best utilize the school.  The whole idea or goal behind building the school was threefold:

1. To reduce elementary class sizes district-wide.
2. To find a permanent home for Renaissance Middle School, which has been leasing space on Munn Street for years.
3. To bring back our special education students who are currently being educated outside the school district. 

On December 7th, the Montclair Board of Education voted 6-1 to move the Rand Elementary School population into the Washington Street School and to move the Renaissance Middle School population into the Rand building on North Fullerton. Shirley Grill was the lone dissenting vote but the results were otherwise met with a standing ovation among the 100+ parents and residents in attendance.

Board of Education Appointment

I (and my colleague, Chris Lane) have been appointed by Dr. Alvarez – the Superintendent of Schools – to his newly created Communications Committee. The committee is designed to hone and better deliver the message of the Montclair Public School System – through many channels – to residents, parents, students, newcomers considering moving to Montclair, colleges and universities, as well as the media.  

I could not be more excited at the prospect of volunteering for the community in this capacity.  As a Montclair High School graduate (no need to mention the year!) and also having attended Bradford, Mt. Hebron and Glenfield, I am particularly excited to give back to the system through which I came, and in which my son is now enrolled.

In January, the committee will make a presentation – for a broad plan of action – to the Board of Education.  Look for future blogs on this topic.

School Tours, Registration and Parent Notification Schedule

Elementary schools will be open for tours during regular school hours the week of February 1st – 5th.  There will also be evening visitations that week and into the week of February 8th – 11th.  Please review the 25 minute video presentation, “Our Schools, Our Town”, on the district’s website ay www.montclair.k12.nj.us

You may pick up an information packet at the Montclair Board of Education office at 22 Valley Road.

Middle School tours take place January 11th – 14th.

Registration for new students held at 22 Valley Road is the week of March 8th – 12th.

The deadline for submitting school choice is May 1st.

Parents a re notified regarding K-5 school placements by July 1st.

You might think that real estate grinds to a halt as the holidays are approaching.  It’s not true.  In the last month alone, Montclair had 25 homes go under contract.  Verona had 10.  South Orange and Bloomfield each put 13 properties under contract.  And, West Orange homeowners accepted offers on 28 homes.

What Kind of Buyers Are Actually Shopping For a Home Now?

Motivated buyers; that’s what kind!  The buyer pool does indeed get a little smaller at the holidays but it does not disappear.  But what’s most noteworthy is that those who are still out there shopping are very serious buyers.  Many of them want to (or must) close by the end of the year.  Beginning in November, it’s very common for sellers to receive offers with a designated closing date of December 28th or 29th.  And January is statistically the most popular month for relocations.

Many sellers think that their home will not sell over the holidays.  It’s true that sales slow down in the second half of December but that is mostly because the real estate industry has – over the years - come to think of Christmas and Hanukah as ‘down time’.  In other words, it’s really the realtors who – historically – have advised sellers to just wait until January to introduce a new listing.  So, ‘new’ inventory coming on the market at holiday time can be scarce.  With January only  a couple of weeks into the future, most sellers don’t mind waiting to list then when buyers begin to return to the market in greater numbers.  But then again, new listings flood the market in greater numbers, too.

Another upside of being on the market over the holidays is that, because inventory shrinks, there are fewer homes for these very serious buyers to look at.  Those homes on the market really get noticed and considered.

Note to Sellers

There is one scenario where – as a seller – it is wise to withdraw a property at the holidays and re-list in January or February.  That is when it has been on the market for a few months without selling.  The holiday season is a natural break period to remove it and re-introduce it as a ‘new listing’ (hopefully at a new lower price and with an improvement or two) after the New Year. Even though the real estate community will remember the property, it will begin the New Year with zero Days on Market (DOM) on the listing sheet.  A high DOM signals buyers that, either the property is way overpriced and they can make a lowball offer or worse, that the sellers are unrealistic and inflexible.

Note to Buyers

The next 4 months will be very active in real estate because so many buyers are trying to take advantage of both the U.S. home buyer tax credit which requires that the buyer be under contract by April 30, 2010 and close by June 30, 2010.  They will also be motivated by the last few months of the fed buying down interest rates.  We don’t know exactly when this will end, but it will end.  Afterward, it is possible for rates to climb at an accelerated pace.  Most experts agree that inflation is coming at some point in the not too distant future.