The $8,000 first time home buyer tax credit is in the news. The current credit is due to expire November 30, 2009 and the National Association of Realtors estimate 1.8 million home buyers will have used the credit by the end of November, including 355,000 who would not have purchased a home without it.

Congress is now debating whether to extend and perhaps even expand the credit to all home buyers. House Speaker Nancy Pelosi said in a recent news conference that an extension is under consideration. “And the question is, would that be just first time homeowners or would you open it up to other purchasers of homes”, she said. Mark Zandi, chief economist for MoodysEconomy.com is among those who favor extending the credit and making it available to all homebuyers. “The most fundamental argument for the credit is that nothing works in the economy if housing is falling,” Zandi said. “The credit is a good insurance policy. It’s vital to stem the housing price decline”.

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Mortgage activity has dropped slightly and mortgage rates have increased slightly in the last week according to the Mortgage Bankers Association weekly survey. Mortgage applications decreased 1.6% on a seasonally adjusted basis and refinance applications were 67.4% of total applications. 30-year fixed rate mortgages increased to 5.01% from 4.89%.

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Economic forecasters predict that 2010 will be the first year since 2005 that housing will contribute to the growth of the U.S economy, according to a survey released by the National Association for Business Economics. Home prices are expected to increase 2% next year, but forecasters don’t believe this increase will discourage homebuyers. More than 80% of economists surveyed by NABE think the recession is over and recovery has begun, but they expect the expansion to be slow because unemployment persists.

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The Chief Economist of the Mortgage Bankers Association, Jay Brinkmann predicts sales of existing home will rise 11% in 2010 and new home sales will climb 21%. “We still see a concentration in the lower end of the market,” Brinkman said. “The entry level homes are in demand.”

David Stevens, commissioner of the Federal Housing Administration predicted that mortgage rates will rise to 5.6% by the end of 2010, though not enough of an increase to discourage a 12% increase in mortgage applications next year.

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The American dream of homeownership is still a good bet, financial advisors say. Despite the downturn in the last couple of years, homes have still appreciated an average of 4% a year since World War II. Plus, it’s a leveraged investment; a 10% down payment yields a 1,000 percent return if the price of a home doubles. There are also valuable intangibles. Owning a home provides independence, security, community and a roof over the owner’s head. No one can say that about investing in stock.

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Last Sunday we reported on the September and third quarter local real estate sales and there are a couple of updates. A few late sales increased the total for the month to 243 closed sales which means we actually had a 0.4% increase in sales for the month. This increase is just the second one in the last two years with the other increase also being in the third quarter. In addition, the average selling price for the month has been corrected to $247,864, a big improvement over the $243,069 reported last week. For the third quarter sales totaled 912 homes, a slight 1.6% decline compared to last year. Prospects are good for improved sales over the next couple of months as the scramble is on to take advantage of the $8,000 first time homebuyers tax credit which is still due to expire on November 30, 2009.

Local real estate sales for September came within an inch of matching last year’s sales and, while down 17.5% from August, this is a big improvement from the 26% drop comparing the same two months in 2008. The average selling price of $243,069 was off 8.1% from last year but improved 6.9% from the previous month. Results for the third quarter are much improved over the first two quarters of the year with a sales decline of just 2.3% compared to 22 and 21% drops in volume in the first two quarters. Most of this recent improvement in sales seems to be as a result of the first time home buyer tax credit as 70% of sales in the third quarter were homes priced under $250,000. This compares with a normal market share of 65% or less. This emphasis on lower priced homes is the reason for the drop in average selling price which is down 7.1% in the third quarter compared to 5% in the first quarter and 1.1% in the second quarter.

For the year, home sales are down 14.6% and the average price has declined 4.4% to $240,951. The median price is down just 1% from $212,000 in 2008 to $210,000 in 2009. The closed sales in September were on the market for an average of 106 days, better than the 114 days last year but a little worse than the 104 figure for August sales. The inventory of homes for sale increased year over year for the first time in a couple of years with 1,866 active listings on the market at the end of September compared to 1,809 last year.

Sales in the last quarter of the year normally account for about 17 – 18% of the annual sales. This means we are looking at total sales for 2009 in the range of 2,650 to 2,700 homes with an average price of $240,000 and a total sales volume of $640 million. These figures take us away back in time: 1990 was the last time sales were below 2,665 homes, 1998 was the last time total sales volume was less than $680 million and the average selling price increased from $245,243 in 2004 to $251,092 last year so five years of appreciation is getting wiped out.

On the positive side, the third quarter put the brakes on 20% sales drops and sales in the next three months should be relatively strong. There has been no action to expand or extend the $8,000 first time home buyer’s tax credit which is due to expire at the end of November so it appears the scramble is on. Of the 934 current active listings priced under $250,000 an amazing 268 of them are under contract and, we would expect, due to close prior to the end of November. This will be a nice boost in the final quarter and might carry us to an improvement of the 528 sales recorded last year. This is in line with the National Association of Realtors which reported the August pending home sales index jumped 6.4%, the seventh straight month of increases and the highest rate since March 2007. Typically there is a one to two month lag between contract and closing so this index is a barometer of future sales. More good news came from the Commerce Department which reported new home sales were up by 0.7% in the latest month and spending on residential construction was up 4.7%, the largest advance since November 1993. Even the Case-Shiller home price index finally issued some good news and took its biggest jump in four years, up by 1.6% last month.

On top of all this, mortgage rates are under 5% and approaching 40-year lows. It seems we are in a perfect storm of conditions that might never happen again: a good supply of homes at very attractive prices and record low mortgage rates. To give one example, at the peak of the market in 2007 the average Fort Collins home sold for $253,000 and the 30-year mortgage interest rate was 6.5%. With 20% down, this $202,400 mortgage had a monthly payment of $1,266. Today, the average selling price is $240,000 and the interest rate is 4.9% which with an 80% loan equals a monthly payment of $1,019. Another way to look at it is that $1,266 payment in 2007 bought a $253,000 home. Today it buys a $300,000 home.

It’s a great time to be a home buyer – but it is a bad time to be ‘on the fence’ because we have to be at the bottom and prices and interest rates are bound to increase.