A housing shortage in 2011 is forecast, caused by a credit crisis that is keeping homebuilders from adding to the inventory required to meet expected demand. Flickr photo.

A housing shortage will likely be another effect of the housing bubble, even after the housing market crash, foreclosure epidemic, credit crisis, massive unemployment and other hardships fade. When the U.S housing market crashed and took the rest of the economy down with it, banks stopped home lending, home buyers stopped buying and home builders stopped building. Unwilling banks have allowed apartment construction to dry up as well. Even with a glut of housing inventory in 2010 and an emerging shadow market of foreclosures, a housing shortage in 2011 is forecast when a growing population exceeds available shelter.

Housing shortage masked by market crash

A housing shortage in 2011 could happen as the economy recovers, jobs are created and the desire to create new households returns. CNNMoney.com reports that the nation is not building enough homes to keep up with potential demand. Just 672,000 new homes were started in April, less than half the long-term rate needed to meet population growth in the U.S. The housing shortage, which may already exist, has been masked by the housing market crash. When job creation returns, so will the home buyers. Pent-up demand could catch the U.S. housing market off guard, leading to a housing shortage and rising home prices.

Housing inventory won’t keep up

A housing shortage seems unlikely as the U.S. housing market has been preoccupied with foreclosures and excess inventory. But Forbes.com reports that if America can’t regain its focus on building homes, the housing market will have a much bigger problem. Brian Wesbury, chief economist at First Trust Advisors, told Forbes that 1.5 million houses a year need to be built to keep up with population growth. Current inventory of new and existing homes is enough to accommodate the housing market for about 7 months.

Credit crisis handcuffs homebuilders

The upcoming housing shortage is being boosted by the credit crisis. The Los Angeles Times reports that home buyers aren’t the only ones who have to deal with tight-fisted banks. Builders are having a hard time borrowing the money they need to buy land, develop lots and construct houses. Most builders aren’t starting houses today until they either have nothing else to sell or buyers have an approved mortgage application in hand. A builder is more likely to get credit now with a solid contract from someone who has a mortgage and doesn’t have another house to sell.

Rental market shortage worse

The housing shortage of 2011 is expected to hit the apartment rental market even harder. According to the National Association of Home Builders, new multifamily construction has been crippled by the credit crisis. That leaves the industry unable to meet the increased need for market-rate and affordable apartments that is expected to accompany economic recovery beginning next year. The two- to three-year timeline required to build apartment communities won’t be soon enough for a large number of Generation Y professionals and newly formed households expected to need them.

Lock in low rent now

The apartment shortage and increased demand will lead to higher rents. Mai Ling Slaughter at MSN.com says that the current market is on the renter’s side, with vacancies at a 30-year high and plenty of perks available for both current and new tenants, but it could all come to an end soon. Now may be the best time to sign an 18-to 24-month lease to lock in that low rent price.

Qualified first-time and repeat home buyers can still take advantage of the federal home-buyer tax credits. The credits are back, after a short hiatus, and prospective  home buyers stand to save thousands of dollars by taking advantage of them.  They should be used wisely,however. Here are a few things to keep in mind:

The deadline is approaching

The deadline for the federal home-buyer tax credits is April 30, 2010. That means that if you want to use the credit, you have to have your home under contract, or in escrow, by that date. In addition, the transaction must close within 60 days. Although 60 days may sound like a long time, consider that the average home takes just under that to close. Also, if you are a first-time buyer, you should start looking soon.

The amount of the credit varies

People need to understand that the amount of the tax credit is not set in stone. In fact, it’s actually 10% of the sale price of the home. Remember though that there is a maximum on the credit of $8,000 for qualified first-time buyers and $6,500 for qualified repeat buyers. For example, let’s say a first-time buyer finds a home for $75,000. Their tax credit would be $7,500. On the other hand, if repeat buyers find their dream home for $110,000, the maximum tax credit would be  $6,500.

Consult the experts

It’s never a good idea to try to sort through complex tax laws yourself, even if you do some research. Make sure you find the right people to guide you through the purchase and help you out. You want to have a mortgage lender who helps you find the right loan product, a realtor who can help you find homes with the right requirements and a tax preparer who knows the details of qualifying for the credit. Working together, they can create a sure-fire plan of action so you can take the tax credit and have all the necessary paperwork to prove your eligibility.

Be wise about lenders

Remember the lending boom? Part of the problem with it was that companies were lending via unscrupulous lending policies. They suggested people take out much larger loans than they reasonably could afford. They suggested people withhold certain information. They even doctored the numbers on loan applications. Don’t be a victim. If your lender suggests any of these practices, run. As Patti Ketcham, owner of Ketcham Realty Group, said in a Bankrate.com article, “It is critical that buyers educate themselves and that they not fall for the slick smoke and mirrors. Anytime you have found money, it brings out all the rats.”

Arm yourself with knowledge

In the end, it’s up to buyers to protect themselves from fraud or other unfair dealings. Take advantage of the federal homebuyers’ tax credit, but act wisely. Surround yourself with the right professionals who can guide you through the process and then enjoy the benefits. The credits are a great way to reduce the cost of moving into the home of your dreams.

Most people are now well aware of the First Time Home Buyer Tax Credit issued in 2009. The National Association of Realtors (NAR) statistics indicated a consistent rise in pending home sales during the period in which first time home buyers could reap tax credits. In fact, NAR’s statistics showed pending home sales were up 31.8% during October, 2009 when compared with October, 2008.

Washington State Representative (D), Jim McDermott said, “The homebuyer’s credit has helped pave the way for stabilization in the housing market…. Its extension will continue to make homeownership more affordable and bring confidence to a housing market and economy that remain fragile.” There were, however, no tax credits included in this legislation to help those millions of people who currently owned a home or had owned a home within the past five years. There was much grumbling on the part of homeowners who failed to qualify for tax credits under this program.

2010 Extended Home Buyers Tax Credit

On November 8, 2009, President Obama signed into law an extended version of the tax credit legislation as part of a larger economic stimulus package. The tax credit for qualifying home owners who chose to upgrade to a new or more expensive existing residence between November 7, 2009 and April 30, 2010 would enjoy up to $6,500 in tax credit. The first time home buyer benefits remained with a cap of $8,000.

Charles McMillan, President of the National Association of Realtors, states, “The substantial rise in home sales we’ve seen over the past few months proves that the tax credit is working and is being used by buyers who were waiting for the right opportunity to get into the market. This important incentive is helping to stabilize the housing market, stimulate the economy and create new jobs in communities all across our great nation. Extending and expanding the home buyer tax credit will enable even more families to take advantage of current low interest rates and affordable prices to invest in their future through homeownership.”

Buyer Qualification for the Tax Credit Extension

Each qualifying home buyer who has not owned their own residence, nor has their spouse owned a residence, during the three years prior to buying a qualifying home during the period beginning November 7, 2009 and ending April 30, 2010 will receive a tax credit of $8,000. Any qualifying homeowner who buys a home during the same tax credit period AND who has owned the home being sold or vacated as their primary residence for five consecutive years of the past eight years will qualify for up to $6,500 tax credit. The qualifying home must be in the binding contract phase of purchase no later than April 30, 2010 in order to qualify for the tax benefit. A copy of the HUD-1 Settlement Statement must be provided after closure of the sale; closing must occur no later than June 30, 2010. No person under the age of 18 can qualify for the tax credit benefit.

Income Qualifications

Homebuyers who are not married must have income of less than $125,000 to qualify for the full tax credit. Married homebuyers must have combined incomes not exceeding $225,000 to fully qualify. Single homebuyers earning between $125,000 and $145,000, or married couples filing joint income tax returns indicating income of between $225,000 and $245,000, will qualify for a portion of the tax credit. The tax credit amount is calculated on a sliding scale so that the more money is earned over the maximum, the less tax credit is available.

Tax Credits Versus Tax Deductions

The greatest part of this tax credit program is that it offers a CREDIT as opposed to a DEDUCTION. A tax deduction means that your taxable income is reduced by a specific amount. However, a tax credit means that after your taxes owed or refund due are calculated, the tax credit is subtracted from income tax owed or added to tax refund amount due. This maximizes the benefits to those who take advantage of the 2010 Extended Home Buyers Tax Credit Program.