New US home sales rise 0.7% in August
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WASHINGTON -- New U.S. home sales posted a tepid 0.7 percent increase last month, missing Wall Street expectations and providing more evidence that the housing market recovery remains tentative.
The Commerce Department said Friday sales inched up to a seasonally adjusted annual rate of 429,000 from a downwardly revised 426,000 in July. Economists surveyed by Thomson Reuters had expected a pace of 440,000.
While it was the fifth straight increase and the strongest report in 11 months, sales were 4.3 percent lower than the same month last year. Sales have risen 30 percent from the bottom in January, but are off about 70 percent from the peak of four years ago.
The report was the second straight disappointing sign for the U.S. housing market, which is struggling to emerge from the most severe bust in generations. On Thursday, the National Association of Realtors said sales of previously occupied homes, which make up the bulk of the market, dipped 2.7 percent last month.
Builders continue to make severe cuts in prices to attract buyers. The median sales price of $195,200 was off 11.7 percent from $221,000 a year earlier, and 9.5 percent below July's level of $215,600. That was the largest monthly drop on records dating to 1963.
There were 262,000 new homes for sale at the end of August, down more than 3 percent from July and the lowest in nearly 17 years. At the current sales pace, that represents 7.3 months of supply -- the smallest amount since early 2007. The decline means builders have scaled back construction to the point where supply and demand are coming into balance.
Buyers, meanwhile, are rushing to take advantage of a federal tax credit that covers 10 percent of the home price, or up to $8,000 for first-time owners. Home sales must be completed by the end of November for buyers to qualify. Builders and real estate agents are pressing Congress for that credit to be extended.
Sales varied dramatically around the country. The best performance was in the West, where sales rose more than 12 percent, and the worst was in the Northeast, where sales sank more than 16 percent. They were unchanged in the South, and down nearly 6 percent in the Midwest.
Meanwhile, major builder KB Home posted a smaller third-quarter loss of $66 million on Friday as it reduced costs and said new home orders increased. Still, the results missed analysts' expectations.
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Home buyer tax credit might be extended for service members
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Reporting from Washington - Will Congress extend the wildly popular $8,000 home buyer tax credit beyond its Dec. 1 expiration date?
That's a question generating huge pressure on Capitol Hill from would-be buyers who haven't found the right house as well as from realty agents, builders, lenders and squads of lobbyists working on their behalf.
But here's the first hint of an answer: On Sept. 17, the leadership of Congress' primary tax legislative committee introduced a tax credit bill that's likely to zip through the House and move to the Senate rapidly. Charles B. Rangel (D-N.Y.), chairman of the House Ways and Means Committee, sponsored the bipartisan Service Members Home Ownership Tax Act (H.R. 3590), which would extend the credit for another 12 months for thousands of military, Foreign Service and intelligence agency personnel who've been posted abroad during 2009.
Rangel's bill, with 29 cosponsors, would keep the credit alive through Nov. 30, 2010, for service members who had at least 90 days of overseas duty assignments during 2009 and who otherwise meet the eligibility requirements.
The bill would also prohibit the IRS from "recapturing" the $8,000 credit when service members are forced to sell or rent out their houses because they are ordered to deploy to a different duty station, overseas or inside the country.
Under the regular rules of the program, buyers who obtain the credit must use their houses as a principal residence for 36 months or repay the credit to the IRS.
As a result of the 36-month rule, many military and diplomatic employees have been hesitant to buy a house and claim the credit or are worried that their absence from the country could force them to repay the money.
For example, the spouse of a Foreign Service officer posted to the Philippines this summer for a two-year assignment wrote to Rep. Earl Blumenauer (D-Ore.) to alert him to a flaw in the tax credit program. The Oregon couple bought their first home earlier this year, encouraged by affordable prices and the $8,000 credit. But having now been posted abroad, they cannot claim to occupy the house as their principal residence. Under current rules, they face recapture of the full credit.
Blumenauer, who is a member of the Ways and Means Committee, said "it is absurd that thousands of Americans serving our country, away from friends and family, must choose between their service work and homeownership." He wrote corrective legislative language that was incorporated into Rangel's tax bill.
Though nothing is guaranteed on Capitol Hill, legislation eliminating tax penalties on the military during wartime looks like a good bet for early passage in both houses. Equally significant: It now appears likely that there will be an $8,000 tax credit available a year from now -- at least for some purchasers. Which raises the question: Why not leave it in place for all first-time buyers?
There's growing support for that on both sides of the Capitol, but there are also some complicating issues.
In the Senate, the most outspoken advocate for months has been a Republican, Sen. Johnny Isakson of Georgia, a former real estate broker. He wants not only to extend the credit to Dec. 1, 2010, but also to raise the maximum to $15,000 and make it available to all home buyers next year.
But recently, key Senate Democrats produced their own version of an extension, limited to six months, keeping the ceiling at $8,000 and targeting only first-time purchasers. The bill's primary sponsor is Sen. Benjamin Cardin (D-Md.). Democratic cosponsors include Majority Leader Harry Reid of Nevada and Debbie Stabenow of Michigan. Republicans John Ensign of Nevada and Isakson have signed on as well.
Cardin raised what may prove to be the crucial issue affecting the scope and duration of any credit extension: cost. "A six-month extension is a fiscally responsible way to provide adequate time to nudge even more prospective home buyers off the sidelines," he said in a statement.
Estimates of the revenue costs of the current credit vary widely, from $3 billion to more than $8 billion.
How do you pay for any extension without worsening the budget deficit? The new Rangel bill includes an answer: You raise taxes somewhere else -- you "pay as you go." The Rangel bill would pay for most of the servicemen's credit extension by increasing IRS penalties on taxpayers who fail to file partnership or S corporation returns.
This would raise an estimated $327 million over the next 10 years. Where and how to raise taxes to cover the far larger cost of a six-month or 12-month extension of the current tax credit could prove much more controversial.
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Understanding Points, Rates and Fees
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Not only do you have to understand what type of mortgage you should choose, you have to understand the costs associated with your mortgage. All of these costs will be paid upon closing your mortgage. Purchase PointsPurchase points, also known as a "buy-down" or "discount points," are an up-front fee paid to the lender at closing to buy-down or lower your interest rate over the life of the loan. Each point is equal to one percent of your total loan amount. If you have a $100,000 loan, one point would equal $1,000. The more points you buy, the lower your interest rate, but the more money you'll need at closing. How do you decide whether you should buy points and if so, how many? Well, the decision should be based on how long you plan on living in your home and what you can afford to pay each month toward your mortgage. If you plan on living in your home for more than five years, it's probably a good idea to purchase points. The longer you live in your home, the more you can save on interest over the life of the loan. Interest RateWhen you get a mortgage, you are charged an interest rate.this is the rate which the lender charges you for using their money to buy a home. It determines how much your monthly payments will be. Generally speaking, the higher the interest rate, the higher your monthly payment. Mortgage interest rates change constantly.daily, even hourly. If you speak to a lender and are quoted a specific interest rate, that's not to say you'll necessarily get that rate when you close on your loan. Not unless you formally lock-in that rate with the lender.locking in an interest rate will guarantee you get your loan with a particular interest rate. Lenders will allow you to lock in for 15, 45 or 60 days. But the longer you lock in, the more expensive it will be, since it's more of a risk to lenders. FeesThere are always fees associated with getting a mortgage, these fees cover the cost of processing and underwriting the loan. These fees can include charges for ensuring the title to the home is free and clear; paying for a land survey; or paying for a home appraisal which gives you the estimated value of the property (lenders require an appraisal to close on your mortgage). Deciding which mortgage to get may depend on what each lender does because different lenders may charge different amounts. Some may charge lesser closing fees to lure you in, but may charge you a higher interest rate, which means you may pay more in the long run. But everyone has different needs.you may or may not be able to afford to pay more at closing and are willing to pay more over the long term. Before it comes time to close, do your homework, make sure there are no hidden fees, and ask your lender lots of questions so that you understand all the costs involved with your mortgage. *Please consult your tax advisor.
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