Open House by Jim Woodard

Now that the extended and expanded tax credit bill for home buyers has been passed by Congress and signed by the president, more people are seriously considering buying a home or selling their residence.

A quick review of the new tax credit law:

Instead of terminating on Nov. 30, the $8,000 credit for first-time home buyers was extended to April 30, 2010. It is effective for home sale contracts entered by April 30 and closed by June 30.

Also, the new law expands the tax credit incentive to include up to $6,500 credit for owners of existing homes who are purchasing another principal residence. To qualify, they must have lived in their previous home for five consecutive years out of the last eight years.

The annual income eligibility limits to claim the full credit amount for both groups of home buyers has been raised to $125,000 for individuals and $225,000 for married couples.

"The tax credit has proven to be a powerful economic incentive," said Joe Robson, chairman of the National Association of Home Builders. "The action by Congress to extend and expand the credit will further stabilize housing and the economy by creating new jobs, stimulating home sales, reducing foreclosures, cutting excess inventories and stabilizing home prices."

NAHB estimates that the extended and expanded tax credit will create 211,000 jobs and generate 180,000 additional home sales in the coming year. It is also expected to generate $9.6 billion in wage income and $6.9 billion in federal, state and local taxes.

Carolyn Warren, author of the new book, "Homebuyers Beware" (published by FT Press), also takes a very positive view of the new tax credit law. "I believe giving the housing industry this shot in the arm will help counteract the economic damage from new foreclosures that are on the horizon for 2010. When more people buy homes, it's not just the banks and Realtors who benefit, but also home appraisers, home inspectors, decorators, painters, landscapers, furniture and appliance stores, even down to the pizza delivery guys — all benefit. And when all these folks have money to spend, that helps the economy as a whole," she said.

Q: Why are refinance mortgage applications increasing?

A: The recent surge in refinance mortgage applications is, of course, primarily due to the continuing low interest rates.

However, those rates tend to slowly rise, thus motivating even more homeowners to seek a refinance mortgage at this point.

Most of those homeowners are taking action to lower their monthly payments. About a half of those taking a refinance mortgage have lowered their payment by at least 17 percent, according to a report from Freddie Mac, a major government-sponsored buyer of existing mortgages.

During the third quarter of this year, homeowners cut their payments by a total of $3 billion over the first 12 months after the refinance loan was finalized, the report stated. On average, the new interest rate was about 1.1 percentage points below the previous mortgage. The number of cash-out refinance applications — where the new mortgage balance is larger than the old — has fallen to the lowest share in six years.

"Homeowners are benefiting from an extended period of very low interest rates," said Frank Nothaft, Freddie Mac's chief economist. "In the first nine months of this year, interest rates on a 30-year, fixed-rate mortgage averaged 5.1 percent. That's the lowest such average in the past 38 years.

"At the beginning of the year, only borrowers who had a solid equity cushion could take advantage of low refinance mortgage rates. Now, borrowers who have a loan owned by Freddie Mac or Fannie Mae can refinance their mortgage even if they have no equity," Nothaft said.

The report also indicated that 64 percent of prime borrowers who refinanced a conventional first-lien mortgage either kept about the same principal balance or reduced it. That's the highest share in the past six years.

Q: Are more home improvement projects being launched?

A: Yes, there was an increase in home improvement and remodeling projects during the third quarter of this year, according to the National Association of Home Builders. Remodelers are reporting that conditions in their markets are stabilizing. This is the third consecutive quarter of improvement.

"More remodelers are receiving calls for bids, but it's still difficult to close a sale," said Greg Miedema, chairman of NAHB's Remodelers Division. "Financing continues to be an impediment with many homeowners not able to secure home equity loans or lines of credit."

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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