The Realtors' spokesman tells me that the new credit will start tomorrow, not today.

"We rechecked the effective date for the repeat buyer," spokesman Walt Malony said in an e-mail. "The effective date is 'after the date of enactment.'Today is date of enactment, so the fun begins tomorrow, Nov. 7."

Judging from all of your questions, tomorrow is going to be a confusing day for buyers, sellers, and the real estate agents, brokers, and attorneys advising them.

Dozens of you have written in with good questions about the tax credit. I'm working on finding answers, especially to one recurring question. To qualify for the $6,500 credit is it necessary to sign the purchase contract after the measure is signed into law today or can a homeowner who closes on a home after today also meet the requirements? I've asked the White House to clarify.

In the meantime, I just received a press release from CMPS Institute, a training, examination, certification and ongoing membership program for financial professionals who provide mortgage and real estate equity advice.

It clarifies a few things. Read on.

More Homebuyers Qualify for Tax Credit

Ann Arbor, MI November 6, 2009 – Congress just passed an expanded version of the $8,000 first time home buyer tax credit that was set to expire on November 30. “The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules,” said Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers. “Although the tax credit remains at $8,000 for home buyers that have not owned a primary residence in the last three years, it has been expanded to include a $6,500 tax credit for home buyers that have lived in their current primary residence for at least five consecutive years out of the past eight years. Under the old rules, move-up home buyers did not qualify.” Consider these three examples:

Example 1:
Jane purchased a home in 2002, lived there for 5 years as her primary home, moved out in 2007, and turned that home into a rental property. If Jane decides to buy a new primary residence today, she would qualify for the $6,500 tax credit based on the fact that she lived in the same residence as her primary home for at least five consecutive years out of the past eight.

Example 2:
Harry purchased a home in 2004, and lived there for the past 5 years as his primary home. If Harry decides to buy a new primary residence today, he would qualify for the $6,500 tax credit based on the fact that he lived in the same residence as his primary home for at least five consecutive years out of the past eight.

Example 3:
Nicole purchased a home in 2006, and lived there for the past 3 years as her primary home. If Nicole decides to buy a new primary residence today, she would not qualify for the $6,500 tax credit based on the fact that she did not live in the same residence as her primary home for at least five consecutive years out of the past eight.

The tax credit applies to homes purchased for less than $800,000 before May 1, 2010. “If you sign a binding contract to purchase a home before May 1st, you would need to close on the transaction before July 1, 2010,” Nicholas said. “It works kind of like a gift certificate that can be redeemed for cash. You simply file a form with the IRS right after you buy your home, and the IRS will send you a check for the full amount of your credit.”

The income limitation for single tax payers went up from $75,000 under the old rules to $125,000 under the new rules. For married tax payers, the income limitation went up from $150,000 to $225,000. “This means that more people will qualify for the credit – especially in parts of the country with higher costs of living,” Nicholas said. “This should help stimulate parts of the housing market that may not have been impacted by the old version of the credit.”

There are many creative ways of structuring your home purchase transaction in ways that maximize the benefits of the credit. Here are a few examples:
· The credit applies to 1-4 unit homes as long as you live in one of the units as your primary residence – you could live in one unit and rent out the others
· If two unmarried individuals buy a home, and only one of the individuals qualifies for the credit based on their income or past home ownership status, the individual who qualifies for the credit can claim the full credit. (Note: In the case of married couples, both spouses must qualify for the credit.)
· The credit applies even if you have co-signers on your mortgage loan

Move CEO Steven Berkowitz said the company didn’t see the usual spike in listings last Spring. Many homeowners are holding off putting their house on the market in this crummy sales year. As for the agents, Berkowitz said the company had seen a “significant decrease” in their number. Of those that are in still in business, they are spending less on marketing.

What gives Berkowitz hope is more potential home buyers coming to the site and staying longer, even its just to window shop.

“They are doing more shopping. They are doing more comparison shopping. They are spending more time looking rather than buying. It is no different than a lot of what is happening in retail in a lot of stores where the high end stores people are walking through the store and shopping but they are not buying.”

The company says it’s updating many of its service offerings, which it needs to. Realtor.com is just about the only real estate search site that doesn’t link to Google's street views so you can see what the neighborhood looks like without driving out there. Get a move on Move Inc!

My last post was flooded with comments from readers asking whether the expanded credit will apply to them even though they closed on a home purchase earlier this year (or last year or the year before...). The answer: "No."

It might seem unfair. But the new credit will take effect only after President Obama signs the measure into law tomorrow. Buyers will have until April 30 to sign purchase contracts and must close on the house by the end of June.

Under the new $10.8 billion plan, first-time buyers would continue to get $8,000 for buying a home. But existing homeowners will now be able to claim $6,500 credit for selling their current home and buying a new one, as long as they resided in the home they're selling for at least five of the past eight years.

Income limits will also expand to $125,000 a year for individuals, and $225,000 a year for married couples. Sounds like a good deal right? Not judging from the flood of comments we've gotten from existing buyers who bought during the past several months. They feel gypped.

A commenter identifying himself as "Jim" said he bought a home during the Great Recession and was miffed that he didn't get a tax credit because he wasn't a first-time buyer. Now he's angry.

"If they are handing out free money, give it to those who actually risked their capital," he wrote a couple hours ago. "I am against this credit altogether ... The government deciding who gets money and who doesn't is TYRANNICAL."

I sympathize with the comments. My parents only sold their Westchester County, N.Y. home of 30 years only a week ago and bought a much-less-expensive house one 15 miles away. They certainly would have qualified for the $6,500 credit and I'm afraid to break the news to them.

But the point of the credit is to stimulate home sales, not to hand out spending money (Though it will indeed stimulate some consumer spending). As I mentioned in my last post, it could be even less effective and efficient than the previous credit. If that's the case, it's best to put some limits on cost. Congressional analysts estimate that the six-month extension and expansion of the credit will cost taxpayers $10.8 billion. Can you imagine the price tag if it was made retroactive to the beginning of 2008?

Waiting for a bus on my way to work I picked up a copy of the real estate sections of The Korea Times, a local newspaper serving the Korean community in Los Angeles. That’s right the real estate sections. There were two, a total of 32 pages of real estate coverage and advertisements in one day’s newspaper. This at a time when falling circulation and ad revenue forced the Los Angeles Times to fold its separate real estate coverage into the business section.

From the ads it seemed the target was real estate investors. There were advertisements from agents that highlighted the income the properties throw off. That's something you don't typically see in mainstream newspapers. There were also brokers pitching 1031 exchanges, a way for real estate investors to defer taxes on sales.

I used to live in LA’s Koreatown neighborhood so I know a lot of money flowed into real estate development during the boom, some of it from South Korea. I’m sure a lot of folks lost money in the past few years. But those fat real estate sections—even though I couldn’t read most of what was in them—reminded me how entrepreneurial immigrants can be, particularly those from Korea.

Lacking in many cases the language skills to get jobs in Corporate America, Korean-Americans start their own businesses. LA has recently seen an explosion in Korean BBQ taco trucks, for example. Others still see real estate as a way to get their piece of the American Dream.

But a new report from Goldman Sachs suggests that the six-month extension might do little for the fragile housing market and could be even less effective than the soon-to-expire credit for first-time buyers that cost taxpayers about $8.5 billion and lasted nearly a year.

The Congressional proposal would give buyers until April 30, 2010 to sign purchase contracts and another 60 days to close. And it will no longer be just for first-time buyers. Homeowners who have lived in their current home for five of the last eight years can claim $6,500, under the new law, which would only apply to houses purchased after the current tax credit expires Nov. 30. Income limits will be more generous: $125,000 a year for individuals, $225,000 a year for married couples.

But Goldman Sachs economist Alec Phillips says, in a report released to clients Nov. 3, that the expanded program won't raise home prices and sales much and likely won't significantly trim the supply of unsold homes.

"The extension of the current credit will probably result in some incremental first-time buying but not as much as the last one," Phillips said in a phone interview today. "The expansion to the other population of buyers [existing homeowners] will provide a small boost to prices, but no more than 1%."

According to Phillips' calculations, all but about 200,000 of the 1.4 million first-time buyers who claimed the credit this year would have purchased a home even without the incentive. And the credit resulted in boosting home prices only by about 1%(Phillips assumed in his calculation that home prices rose in part because sellers built a large portion of the credit into their asking prices).

The pool of first-time buyers who still need an incentive to get off the fence is likely small because many of them have already taken advantage of the now-expiring credit. Existing homeowners who qualify for the new $6,500 credit could spur additional sales. But the supply of unsold homes will remain unchanged because most homeowners will have to sell their existing home in order to buy a new one (The credit only applies to principal residences).

This doesn't mean that the credit is useless, only that it is inefficient. For one thing, it could stimulate the economy by giving consumers more money to spend. (Economist Simon Johnson argued in the Washington Post last week that the tax credit is both inefficent as a homebuyer incentive and as a economic stimulus).

"We were not arguing that [the expanded credit] would have no effect," Phillips said. "Just will the effect be as great as last one?"

LoopNet.com, a Web site for commercial real estate listings, took a poll of 1,000 its members in the last two weeks of October. LoopNet members include real estate investors, brokers and owners. The results suggest that unlike those in the rebounding housing market, commercial real estate players are a little more gloomy.

When Will the Commercial Real Estate Market Recover?

In July a vast majority (66%) expected the volume of commercial real estate transactions to rebound in 2010. Now that number has decreased to just over 50%. Instead there has been a sharp increase (up 13% to 46%) in those expecting the recovery won't occur until 2011 or later. Investors are more pessimistic, with a median expectation of recovery timing that is approximately one quarter later than that of brokers or commercial property owners.

Have Commercial Real Estate Prices Hit Bottom Yet?

More than half of all respondents expected to see future declines of 11% or more. All three groups surveyed expect values to drop further. Owners are the most optimistic, with nearly 20% saying prices have already bottomed.

When Will Commercial Real Estate Sales Prices Hit Bottom?

Expectations for when pricing will bottom mirror that of when transactions will recover: The second quarter of 2010 was the most common choice, but more than 10% said 2012.

What are the Biggest Barriers to Commercial Real Estate Market Recovery?

Lack of access to debt financing is the #1 barrier to market recovery, according to survey participants. High asking prices were the #2 reason cited by investors and brokers, while owners considered this less of an issue. Uncertainty about future cash flows remains a significant factor.

Treasury Secretary Timothy Geithner told the Economic Club of Chicago last week that commercial real estate would not be a drag on the nation’s banking system the way housing markets have been. "That's a problem the economy can manage through even though it's going to be still exceptionally difficult," he said.

The extension will apply to higher income buyers. Previously the credit was available to individual filers making $75,000 a year or less. For couples the limit was $150,000. The new income limit will be $125,000 for individuals and $225,000 for couples.

There's also something in for move-up buyers. Previously you couldn't claim the credit if you owned a home in the past three years. Now, if your last home was your primary residence for at lease five years, you can claim $6,500 in credit if you buy a new home. The new house can't cost more than $800,000 though.

Just in time to kick Washington into action, the National Association of Realtors reported that pending home sales jumped 6% today. That’s the eighth month in a row of sales increases and the longest rising streak since 2001. "What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” said the association’s chief economist Lawrence Yun.

I’ve a written before about the role psychology has in home purchases. No where is that topic more relevant than in what we’re seeing with the tax credit. I participated in an Internet interview last week on the housing market on the Financial Fitness Show . Jim McQuaig, a mortgage broker in Reston, Virginia, said he recently completed financing for a woman buying a $430,000 home who said the $8,000 tax credit was the incentive.
Imagine that, one of the largest purchases of your life and you’re moved to do it by a tax credit worth less than 2% for the purchase price!

Armstrong ... has joined with longtime agent Bill Stapleton and business manager Bart Knaggs to form CSE Realty Partners, a privately-held real estate investment company based in Austin, Texas. The trio, responsible for directing more than 20 successful enterprises since 1995 ... have recruited 20-year real estate industry veteran Lance Sallis to lead the new company.

As if that's not enough athletic ability for one real estate company, the team will also include Patrick Jeffers, a former NFL wide receiver who played for the Denver Broncos Super Bowl XXXII Championship team.

Armstrong is a natural-born entrepreneur. He's also co-founded businesses ranging from hotels to artist management to live events to a bicycle shop to LiveStrong.com.

Note to the Austin real estate community: Do not, repeat not, accept an invitation to play these guys in any "friendly" game you can think of.

Economist and writer Katerina Alexandraki has launched a creative idea for easing the housing crunch this holiday season. She’s asking Wall Streeters getting big bonuses to contribute them to folks in danger of losing their homes.

Wall Streeters are expected to get a lot of heat this bonus season, both for creating the loose lending standards and securitization of loans that fueled the housing bubble and now for making a killing with stocks and distressed assets surging in value thanks largely to the trillions of dollars in government support. Check out the Web site for Katerina's campaign, which she called Bonus for Homes.

Katerina hopes to distribute the money to low-income earners and the unemployed., specifically folks who were victims of predatory lending or who are facing foreclosure. She describes it as “a private-sector initiative to address the anomaly that, while everyone, from top to bottom, public and private, is to blame for the financial crisis, some of us have fared much better than others.”

She’s looking for volunteers to contribute or to nag their fellow high-earners. Of course you could just as easily donate to local housing-related charities. Maybe even with company matching funds!

Some more details:

*The credit is available for homes that go under contract by April 30, 2010 and close within 60 days after that.

*It will be attached to a bill to extend unemployment benefits, but it's unclear when that bill will be voted on.

* First-time buyers (those who have not owned a home for three years) can claim an $8,000 credit. Homeowners who buy a new principal residence after living in their current home for at least the last five years can claim up to $6,500.

*Income limits: $125,000 a year for individuals, $225,000 a year for married couples.

* The proposal will include anti-fraud measures, including minimum age requirements and additional authorities for the IRS.

I ran the $10.8 billion figure by Moody's Economy.com chief economist Mark Zandi, who hasn't yet come up with a cost figure for the current proposal. But he said "that sounds in the ball park."

Landscape architect Ken Smith has precisely the right idea for how to build Orange County Great Park, the ambitious urban park planned for the site of the El Toro Marine Corps Air Station south of Los Angeles in Orange County, Calif. The park was supposed to be financed by real estate development, but homebuilder Lennar Corp., which took control of the base in 2005, has put construction on hold because of California's massive housing bust.

Smith's idea: Build just a little of it, attract some crowds, garner interest and support, and then go from there. According to an article in The Los Angeles Times by Paloma Esquivel, the bicoastal Smith was inspired in part by New York City, where builders of a park along the Hudson River built a constituency for the project by putting in temporary trails for jogging, biking, and roller-skating.

Not that Smith has much choice--no one's going to sit down tomorrow and write him a check for the $1.3 billion that he thinks will eventually be needed to build "the first great metropolitan park of the 21st Century."

Pragmatically, Smith started out by building a Preview Park on a tiny piece of the 4,700-acre former military base. Its main attraction is an iconic crowd-pleaser, a big, orange, helium balloon that gives park visitors panoramic views from an altitude of 400 feet. More than 100,000 people have flown in the balloon--not a bad way to engender optimism for the bigger project.

In August, according to an article in the Orange County Register, the city of Irvine, Calif., and Lennar agreed that Lennar would commit $58 million over the next five years for infrastructure and maintenance in the park, and would give the city 135 more acres of park land. The article quotes Emile Haddad, Lennar's former chief investment officer, whose new company, Five Point Properties, recently took over management of the Great Park. "We're trying to set this thing to be successful based on the world we live in today," Haddad said. (Meaning: A post-bust world.)

Then, earlier this month, the park's board of directors approved $65 million worth of construction on 200 acres, including sports fields and gardens but not a planned lake.

Orange County Great Park isn't exactly great yet. It isn't even exactly a park. But you do what you can.

On the economy as a whole
Bair said the Administration was winding down some of the emergency programs introduced in the wake of the crisis such as the TARP funding. “Things are getting better,” she said. “It’s time for government to get out and let the markets work.”

They’ll be more bad news though.
“Banking is a lagging indicator. They’ll go through the process of cleaning up their balance sheets for at least two quarters past the end of the recession.” There are now 416 trouble banks, 106 that have failed this year. Bair said banks will see $100 billion in losses over the five year period beginning in 2008. About $60 billion has been recognized already.

And more changes are coming.
“There’s a difference between free markets and a free-for-all,” she said. Bair supports legislation proposed by Rep. Barney Frank that would create a government-run recovery fund, financed by private industry, that would take over investment banks and insurance companies deemed “too-big-to-fail.” The process would work in much the same way the FDIC takes over failed banks. In such cases, shareholders and lenders would take more of a hit than they did in the cases of bailouts such as AIG. “I want the market to understand there will be losses,” she said.

On the unpopular decision to bail out big banks.
“Everybody did what we had to do, a lot of us didn’t like it,” she said. Bair said she wants to see the quasi-governmental agencies Fannie Mae and Freddie Mac redesigned. “We either nationalize them or privatize them, but this hybrid approach didn’t work.”

IndyMac, no mas
She told a vocal group of folks who had invested more than the insured limit in IndyMac CDs that they wouldn’t be getting any more money—“there are virtually no assets left.” She said that if folks wanted to increase their recoveries in bank failures they’ll have to get Congress to change the laws.

Why loan officers don’t return calls
I asked the Chairwoman after her talk if the PPIP program would be expanded to purchase bad assets from good banks. She said yes. I also asked her take on why there have been so many complaints about banks taking so long to approve loan modifications. “They didn’t staff up,” she said. “There is still to too much of an inclination to just not do it. Investors are still unwilling to do modifications. We tried to streamline it, to make it about pay stubs and tax returns. That’s what you need.”

The future of banking
When asked if the FDIC was slow in allowing new banks to be insured, she conceded it was. “The old model of brokered deposits funding commercial real estate, we have a lot of problems with that.” She also said she hoped federally insured institutions will have learned something from the crisis and avoid exotic financial instruments and focus instead on the basics. “We’re going to get away from models and math and make loans based on getting to the know the borrower. It’s not who comes up with the best financial engineered product or who made the most fees anymore.”

Wishful thinking, but let’s hope she’s right.

The compromise bill would likely open the program to some existing homeowners. The expiring tax credit is limited to buyers who have not owned a home for the last three years.

According to a CNN.com story today:

* First-time buyers could continue to claim up to $8,000. But existing homeowners who have lived in their home for five years could receive up to $6,500 if they trade up to a larger principal residence.

* The full credit would be limited to buyers who earn less than $125,000 a year and for married couples with annual incomes up to $225,000.

* The credit could only be used for homes selling for $800,000 or less.

* Contracts must be signed by April 30, 2010 and sales must close by June 30.

Mark Zandi, chief economist for Moody's Economy.com (MCO), told me recently that he supports the extension because the housing market could take a big step back without it. But he agreed with critics that it is one of the most inefficient ways for the government to support housing.

According to Zandi, only 22% of about 1.8 million buyers who will claim the soon-to-expire credit would not have bought a home but for the incentive. Expanding the credit to include previous homeowners and extending the credit through June will cost about $30 billion, on top of about $8 billion that would have already been spent, he said.

The compromise bill outlined here might be cheaper because it seems to more narrowly define the existing homeowners who can take advantage of the credit.

The 20-city index was down 11.3% on a year-over-year basis but the drop is only that severe because prices are measured against values in August 2008, before the economic meltdown pushed up unemployment and dragged down home prices. A few months from now we'll be comparing prices to post-Sept. 15, 2008 prices and the year-over-year change could very well be in positive territory.

But the $8,000 tax credit for first time buyers that is set to expire Nov. 30 has made it difficult to evaluate the seasonally-adjusted gains posted during the summer. Buyers were rushing to take advantage of the program and that drove sales. If the Congress doesn't vote to extend the credit, sales could drop in coming months.