Today Governor Arnold Schwarzenegger signed  Assembly Bill 183(CA Homebuyer Tax Credit) into law.   The new law is really an extension of the old California tax credit bill  from 2009 that was so popular that it was out of funds a few months after it was passed.  For a State that claims to be broke the bill allocates a large chunk of channge....$200,000,000 for the credit.  The total allocation of $200,000,000 in tax credits is divided between first time home buyers( people who haven't owned a home for 3 years) and purchasers of homes that have never been lived in (new homes).  Each category has $100,000,000 available until the credit runs out... which might be very soon judging by how quick funds dried up last year.




A brief outline of the bill:


1. The purchase of a qualifying residence  must occur (close escrow) on or after May 1, 2010  or before December 31, 2010,  or after December 31,2010 and before August 1, 2011,  subject to specified restrictions. ( I believe this refers to new construction that was purchased prior to December 31, 2010 but not completed until later)


2. The amount of the tax credit is the lesser of 5% of the purchase price or $10,000.    However as in the 2009 version there doesn't appear to be either an income or purchase price limit. So first time buyers in the Beach Cities or folks buying new construction.. no matter what the price... qualify for the credit.  This has to make the folks at 360 South Bay very happy.


3. Only one credit will be issued to a first time home buyer that buys a new home.  So if you bought a new home last year you don't get the credit again this year.

4. A "qualified principal residence" is an attached or detached home that will be used as the principal residence of the purchaser, is eligible for the homeowner's exemption under Section 218, and has either never been occupied, or is purchased by a first time home buyer.

5. A "first time home buyer" is and individual, or individual's spouse, who has no present ownership interest in a principal residence during the preceding three year period, as of the date of purchase.
6. The tax credit is paid over a 3 year period.   You have to occupy the qualifying residence for at least 2 years immediately after the purchase.  The tax credit is non-refundable, so if you don't actually use it during the specified time,  you lose the credit and any credits you have taken will be recaptured.

7. You can reserve a credit prior to close of escrow. If you wait to apply after the escrow closes you must apply for the credit within 2 weeks of closing or lose it.



As a little bonus.. if you qualify for the Federal tax credit and  are under contract by 4/30/2010 and close by 6/30/2010 you could  likely get $18,000 as a credit from the Feds and the State if escrow closed after May 1, 2010... not a bad deal if you can get it....

Click for the full text of the bill... AB183

                                                                                 The Redondo Beach Pier



After I posted about  down payments on  home sales in Manhattan Beach,   a reader asked if I would do a similar post on Redondo Beach home sales. I apologize for taking so long but I've been out of town packing up my Mom's home so she can move back to the mainland... but that's another story.

Reviewing the  percentage of cash used for down payments on recent home sales has pointed out the difference in Manhattan Beach home buyers and Redondo Beach home buyers.  I was so intrigued that I'm going to post for Hermosa Beach  and El Segundo in a few days to complete the comparison for all the Beach Cities. 

North Redondo and Manhattan Beach are opposites in the Beach Cities real estate markets.   Manhattan Beach is of course the high end with North Redondo being the entry level.  In Manhattan Beach all cash sales made up over 20% of the market.  In North Redondo they were less then 10% and in South Redondo they were  slightly above 10% of closed sales.

 In North Redondo 80 single family homes closed escrow from October 1, 2009-March 7, 2010.  Of those 80 homes 6 were cash sales,  50 buyers put 20%  or more down while 18 buyers used either  VA or FHA funding less then 10% down.  In South Redondo 37 homes closed escrow during the same period.  4 were cash sales, 21 were purchased with 20% or more down and 10 were purchased using FHA loans.  In Manhattan Beach, of the 119 homes sold,  only one property sold using FHA financing, and 115 sold with more then 20% down.   




North Redondo:  Down payment %  for single family homes
















South Redondo: Down payment  % for single family homes


















**As with Manhattan Beach the figures are based on  single family homes...

Recently there has been  a lot of  speculation at our local consumer blog,  MBC  about where  the Manhattan Beach and the Beach Cities real estate market is headed.   While we have seen prices decline in the last year we still don't have a large number of foreclosure or short sale properties in either Manhattan Beach or the Beach Cities.   As we haven't experienced that perfect storm of massive  numbers of foreclosures along with high numbers of short sales,  property values are still higher then many expected. 

From September 2009 to today ( February 19, 2010) there have been 119 single family homes close escrow.   Of the 119 closed home sales 24 (20%) were all cash. 4 sales had less then 20% down,  26 sales had 20% down and the other 65 sales saw down payments in excess of 20%.  What was interesting is that not all the cash sales were upscale homes.  Cash sales were across the spectrum on price.  By the same token a number of Luxury  homes buyers leveraged their purchases with loans above the $1,000,000 maxi mun mortgage interest deduction figure.   There were 15 home sales over $3,000,000.  Of those 15 homes  4 sold all cash, 5 had down payments of 40% or more and the other 6 buyers put down  between 20%-30%.   A few of these folks may have been reaching on price but I'm guessing a number of these buyers were taking advantage of very low interest rates and are keeping their cash for future investments.

 Another interesting factor was the number of  buyers who got  a first  loan of  $729,750 and a second loan to make the total loan amount about  $1,000,000 to take advantage of the mortgage deduction limit.  A year ago lenders were not making second loans no matter how much money a buyer had as a down payment.  There were also a few folks who obtained new secondary financing  a few months after the close of escrow. 


I don't know about  the percentage of down payments in other zip codes but I would think that a market where the median price is well over $1,000,000 and  20% of all sales are cash sales is a market where most owners and buyers  are  financially savvy.  The bad news is that  I expect to see more foreclosures and short sales in the coming months as the California economy continues to be in trouble and mortgage rates get ready to move higher.   The good news  is that our local real estate market looks as if it will continue to weather the storm better then expected.

Yesterday there was a rather interesting article in the LA Times written by Brent T Wright,  a  law school professor at the University of Arizona.   Professor Wright is advocating that homeowners should just walk away from their homes if they owe more then the current value of the home.  He is not talking about people who have lost their jobs or had major financial problems.  He is suggesting that  consumers defaulting  on a loan they can pay is  not wrong but simply acting in your own self interest.  Phooey!

Not only is the professor advocating that folks walk away,  he also thinks they should  buy big ticket items  like a new car or even another home prior to defaulting.  He finds this to be prudent money management.  I think he is just one more jerk who thinks it's OK to stick it to the taxpayer.  That's right folks it isn't the banks who pay the price when this happens... it is you and me... the taxpayer  who ultimately takes the hit.

I'm guessing it has escaped the good professor's attention that banks rarely pay for their mistakes. Rather it is the consumer who gets hit every time someone defaults on loan.  We are the ones ultimately paying  the costs for TARP and to keep Fannie and Freddie solvent.   It is the consumer who pays the price when banks lose money.

I know of a couple of homes in the Beach Cities where the former owners did as the professor has suggested.  They borrowed as much as they could, bought new toys and new homes out of the area and then stopped making payments to the bank.   The lenders " lost"  hundred of thousands of dollars on these properties but  most of the loss will be made up by the bank charging higher fees on everything from accessing an ATM machine to rates for new loans .. oh and paying very low interest rates for folks who are trying to put a little aside for a rainy day.

There are banks that  go under, but they usually get picked up at bargain price by a new company and are  often financed by the Federal government... otherwise known as you and me.   So while I don't begrudge Professor Wright his opinion.... I would feel  far more comfortable if he was picking up the tab with his own money rather then mine when he tells folks it is OK skip out on their obligations.

There is good news and bad news for South Bay-Beach Cities home buyers.....

Looks as if the Home Buyer Tax Credit extension  is almost official as the House, on a vote of 403 to 12,  passed  the extension of the home buyer tax credit.  The only thing it needs to be law is  President Obama's signature on Friday. The  new version of the tax credit has been expanded and extended. 

The tax credit bill will be extended through April 30, 2010, with a 60-day extension if a  contract is in place prior to the deadline. so technically you have to be in escrow no later then April 30, 2010 to take advantage of the credit.  First-time home buyers are eligible for a tax credit of up to $8,000.  An addition to the law allows existing homeowners  who purchase a new  primary residence ( not a second  or vacation home)will be eligible for a reduced credit of up to $6,500. To qualify for the $6,500 credit, existing homeowners must have lived in their current residences for at least five years.

  The good news for our South Bay-Beach Cities real estate market is that income requirements have been expanded to $150,000 for single buyers and $225,000 for joint filers.  The bad news is that the  qualifying purchase price of the home is capped at $800,000.

Additional provisions  in the bill  allow taxpayers to claim the credit on purchases completed in 2010 on their 2009 income tax returns.  In order to keep investors from using the credit the legislation states that home buyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase. However if they sell in less then 36 months the credit must be repaid to the government.   This requirement is waived for active duty military personnel who move due to a military order.

 Manhattan Beach and Hermosa Beach will  probably not see a lot of buyers use the provision because of the cap on the price of a home.  However other South Bay Cities may well see an increase in sales from folks who have been undecided about whether to purchase a home now or wait until later next year.

 I don't know if the new version of the law is retroactive for people who didn't qualify under the old income requirements but  would qualify under the amended law.  It might be a good idea if you purchased a home under $800,000 in the last 4 months and meet the new income requirements to check with you tax adviser.