Indianapolis Once Again Named Most Affordable City in Nation

By Les Christie, CNNMoney.com staff writer, Last Updated: February 23, 2009: 2:17 PM ET

NEW YORK (CNNMoney.com) -- Crashing home prices have led to the most affordable housing market in at least five years, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index released Thursday.

More than 60% of all U.S. homes sold during the last three months of 2008 were affordable - meaning that a family making the national median of $61,500 a year would pay 28% or less of their total income toward housing expenses.

At 62.4% affordable, the figure is up considerably from 56.1% in the previous quarter and 46.6% at the end of 2007, according to the report.

Topping the list of most affordable U.S. metro areas, which ranks areas with more than 500,000 in population, was Indianapolis. This is the city's 14th consecutive quarter in first place; it boasts a full 93% of all homes sold being affordable to median family households.

The least affordable was the New York City metro area, where only 13.9% of homes sold met the criteria.

In the fourth quarter, the national median home price fell to $190,000 from $205,700 in the previous-year period, according to a report issued last week by the National Association of Realtors. That combined with falling mortgage rates has made home buying the most affordable it has been since early 2002.

"Falling home prices and very favorable mortgage rates both contributed to the housing affordability gains we saw in the fourth quarter of 2008," NAHB Chairman Joe Robson, a homebuilder from Tulsa, Okla., said in a prepared statement.

That still wasn't enough to get moribund housing markets moving again. Existing homes sold at an annualized rate of 4.74 million in December, according to the National Association of Realtors, down from more than 7 million during the boom.

And a government report revealed that new home sales crashed to an annualized rate of 331,000 in December, the lowest since record keeping began in 1963.

"Worsening economic conditions, historically low consumer confidence and uncertainty about future home prices kept many qualified buyers on the sidelines," Robson said. Still no buying push.

That affordability has improved so much does not necessarily make people go house hunting, according to Mike Larson, a real estate analyst with Weiss Research.

"You could argue that house affordability indexes are improving but that may not be the best way of defining whether it's a good time to buy," he said. "Concerns about the economy and whether they're going to still have a job have kept many homebuyers from stepping up to the plate."

During the boom, when house affordability plunged, buyers came out in droves. They were confident in the economy and afraid that home prices would soar out of reach. Today, just the opposite applies.

"Affordability is going to get even better," said Larson. "Home prices are not done falling. Buyers recognize this. There's no sense of urgency, and rightly so."

Indeed, according to Nicholas Retsinas, director of Harvard University's Joint Center for Housing Studies, affordability, which was a major factor in homebuying during the boom, no longer matters very much. In most parts of the United States, affordability has returned to where it was in 2002 or 2003.
"The new barrier is willingness to buy," he said.

That's why one major goal of President Obama's housing-rescue plan involves slowing foreclosures to stabilize housing markets and foster consumer confidence.

"If that happens, maybe people will start thinking, 'Hey, maybe prices won't go down tomorrow,'" said Retsinas.

Most and least affordable
Affordability in Indianapolis, the 33rd largest metro area in the United States with 1.7 million people, was buoyed by fairly high median income of $65,100 and rock-bottom home prices. The median price for a home sold during the quarter was just $103,000, according to the National Association of Home Builders report.

Those prices, combined with reasonable mortgage interest rates, make home-buying in the area a snap. A buyer of a median-priced home putting 20% down would pay only about $450 a month in mortgage expenses.

But even though house buying costs are reasonable, the city's weakening economy meant it did not escape the foreclosure plague. More than 20,000 homes, representing nearly 3% of the city, received a foreclosure filing of some kind in 2008, the 26th highest rate in the nation.

Other most affordable towns were: Warren, Mich. (89.6%); Youngstown, Ohio (89.4%); and Detroit (89.3%).

In the New York City metro area, home prices took a steep dive during the quarter, to $455,000 from $500,000 three months earlier. But even that was not enough to dislodge the city from its rank as the most unaffordable metro area in the land.

Median income in the area is $63,000, less than in Indianapolis and, with home prices more than four times higher than in the Midwestern metropolis, only 13.9% of the homes sold there were affordable to median income families.

That was still a major improvement from two years ago, when only 5.1% of homes sold during the fourth quarter of 2006 were affordable. And New York households have been barely brushed by foreclosure so far with only 0.71% receiving some kind of foreclosure filing during 2008.

Other least-affordable metro areas included San Francisco at 20.6%, where affordability improved greatly from 5.7% during the second quarter of 2007; suburban Long Island, where 25.5% were affordable; and Los Angeles, where 26.9% were.

First-Time Home Buyer Tax Credit FAQ'S

Congress Enacts Bigger and Better Home Buyer Tax Credit

A tax credit of up to $8,000 is now available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009. Unlike the tax credit enacted in 2008, the new credit does not have to be repaid.

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

Who is eligible to claim the tax credit?

First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

What is the definition of a first-time home buyer?

The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

How is the amount of the tax credit determined?

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

Are there any income limits for claiming the tax credit?

The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

What is "modified adjusted gross income"?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

Can you give me an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?

The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.

How do I claim the tax credit? Do I need to complete a form or application?

Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.

What types of homes will qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

I read that the tax credit is "refundable." What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?

Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.

Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?

Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?

No. You can claim only one.

I am not a U.S. citizen. Can I claim the tax credit?

Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.

Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

For further information click on this link:

http://www.federalhousingtaxcredit.com/2009/faq.php

Provided Courtesy of CENTURY 21 Realty Group

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Do you ever drive by a home for sale and wish you could get more information about the home without calling your agent? Then I have the tool for you. CENTURY 21's Going Mobile will allow you to download an app to your smart phone that will allow you do just that. Using GPS capabilities it will pinpoint the area where you are and pull up all the listings in that area. And the best thing??? CENTURY 21 Realty Group it pulls from 10 MLS boards and covers most of the Central Indiana/Kentucky area. So if you are looking for a home, or just curious, contact me and I will set you up.

Not Your Ordinary Agent!

I'm different. I'll admit it. Yeah, I'm your agent and I do things a little differently. I think I owe it to you. It's all a part of who I am. I'm not going to candy coat things for you, I'm not going to pressure you. I'm not going to tell you what to do. I'm going to give you information and let you make the decision. After all, you are the one who will have to live with it.

Sellers. I'd love to have your listing. If you want to sell. If you don't, then don't call me. If you're out there, looking to make a profit on the home you bought 3 years ago, don't call me. If you feel that your home is worth $10,000 more that the house down the street, just like yours, that was totally updated before putting it on the market because you have that little mudroom on the back that "really could make into a 4th bedroom if they need it and that other house only has three," don't call me. If you'd rather give a 'carpet allowance' then take the time to put it in and repaint, don't call me. I don't need that kind of business.

In today's market, Sellers have to understand the whole picture. They have to understand that the competition out there is tough. They have to understand the importance of pricing correctly, from the start. Selllers have to understand that homes need to be move in ready or discounted in price if not. They need to know what their true competition is. They have to know what buyers want.

Sellers need to understand that percieved objections greatly affect the price a buyer is willing to pay. If buyers think it will be an issue, it will and they won't make an offer. Too many times I've heard, "If just takes a little time to get used to the trains going by." If you really want to sell, you have to consider things like that.

Buyers are looking for a bargain. They are looking for a deal. As a Seller, you have to make them understand that they are getting one. Together, we will do so.