• For almost three years now, real estate values have been falling from the lofty heights attained in late 2006 and early 2007 at the top of the real estate bubble. You do remember the bubble, don’t you? Unfortunately, in several areas around the country the bubble has caught up with over 50% of the homeowners who have a mortgage. According to the Wall Street Journal, Nevada homeowners lead the country in being upside down in their mortgages with 65% owing more on their mortgage than their house is worth. It’s no surprise that the next two states are also in the “retirement sun belt” with 48% of homeowners in Arizona in the same position, and 45% of Floridians following suit. This unfortunate situation developed not only because people bought new homes during the real estate bubble, but also because of the refinancing and the removal of equity of existing homes. Prices on homes have declined to a point where the sales in October were the best they have been in almost four years.
• Given the pace of home sales during the month of October, much could be attributed to the expiration of the first time homebuyer’s tax credit. Certainly this didn’t hurt. While these sales are certainly a good thing, please keep in mind that, according to the National Association of Realtors, 30% of third quarter home sales nationwide involved either foreclosures or short sales. It’s not likely it will get any better any time soon as foreclosures have increased from 2% to 4% over the past two years, and mortgages that are at least one payment behind have increased from 6% to 10% during the same period according to the Mortgage Banker’s Association.
• Regarding the tax credit, Congress believed that this program was so important, as well as so politically popular, that it has been extended past the initial November 30, 2009 deadline to April 30, 2010. This means that any contract signed prior to that date which closes before June 30 will qualify for the credit. Just a reminder--not everyone can take advantage of it, but more people can under the extension than were able to under the old credit. The full $8,000 tax credit can be obtained for the purchase of a home that costs $80,000 or more, and by those purchasers with an adjusted gross income (AGI) of $225,000 or less for a married couple filing jointly. Previously, the AGI limit was $150,000. The credit phases out over the next $20,000 of AGI and finally ends at $245,000. Single taxpayers also get quite a significant break with the increase in the limit going from $75,000 to $125,000 of AGI. This is also phased out with the upper limit being $145,000. Here’s a little twist for current homeowners. If a current homeowner has owned a home for five out of the last eight consecutive years, they may be able to get a credit as large as $6,500. They must purchase a new home after November 6, 2009, and no later than April 30, 2010. Homeowners who are in this situation should check with their tax advisor due to all of the issues that will need to be addressed.
• People who are age 70-1/2 have required minimum distributions from IRAs. However, there is a special provision in place this year which waives the requirement for 2009. The government is providing a reprieve on these required distributions due to the significant declines in investment values. Interestingly, this waiver applies not only to the owner of the IRA, but also for anyone with an inherited IRA or 401(k).
• It’s amazing what a year can do to the costs of things and it’s one of the reasons why deflation is being talked about so much. We’re talking about the cost of oil. During the first nine months of 2008, the U.S. imported $277 billion of oil. Of course, that was while the price of oil was rising to $147 per barrel in July of 2008. During the first nine months of 2009 we only imported $131 billion of oil. Let’s hope that conservation also had something to do with it. (Source: Commerce Department)
• Saving for retirement is a major goal for many Americans, and is certainly a worthy one. Unfortunately, the American worker has not done as good a job as they might have. Only 26% of Americans age 55 and over have at least $250,000 set aside for retirement. This amount does not account for any defined benefit plan (for those who have them), nor does it count the equity in their home (what equity?) (see above)
• As the golfing season winds down, we should remember that at this time last year Tiger Woods was still in rehabilitation for his knee following major surgery after his win at the U.S. Open in 2008. Who could forget all of his grimacing through the final few rounds and the head-to-head competition with Rocco Mediate? Apparently, Tiger mended very well. This past year, Tiger won $10.5 million of prize money and he averaged 68.05 strokes per round. How much is an average stroke worth per round of golf? A lot. John Senden averaged 70.06 strokes per round and earned $2.3 million. That means that each stroke was worth $4.1 million. It’s amazing what little separates the athlete at this level of golf and the amount of money they earn during the course of the year. (Source: PGA)

Somerset's Wealth Management Team is pleased to provide this reprint with permission from ProVise Management Group, LLC, a SEC Registered Investment Advisor

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