The proposed extension of the tax credit for homebuyers, which the Senate cleared for passage on a roll call vote Monday night, is likely to motivate first-time homebuyers twice as much as current homeowners to buy a home, according to results from the Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions released today.
In addition to extending the current $8000 tax credit for first-time buyers, the Senate legislation adds a new $6500 credit for existing owners who buy a new primary residence before June 30, 2010. Both the first-time buyer extension and the “move up” buyer credit for existing owners would take effect December 1.
The first-time homebuyer tax credit would do more to defray the purchase price of a starter home than the move-up buyer credit would do for existing homeowners buying a new home. The $8000 first-time buyer credit represents an average of four percent of the home purchase price for first-time homebuyers. However, the $6500 move-up buyer credit is worth only about two percent of the average purchase price for current homeowners who want to buy a new home. Survey results show that the average price for homes purchased by first-time homebuyers was $186,000 in the third quarter of 2009. In contrast, the average price for current homeowners buying a new principal residence was $309,000.
“On a percentage basis, the effect of the tax credit would be much smaller for current homeowners,” observed Thomas Popik, research director for Campbell Surveys. “We estimate that the first-time homebuyer tax credit will result in a 10 percent increase in home sales from March through November of 2009. We’d expect the effect of the proposed tax credit for current homeowners to be about half as large–from December until the tax credit expiration in the spring of next year, it might be five percent of three million transactions, or about 150,000 incremental home sales. Incremental sales to first-time homebuyers could be an additional 300,000, for a total of 450,000 incremental sales due to the tax credit extension.”
In the third quarter of 2009, current homeowners made up 38 percent of the home purchase market, with first-time homebuyers accounting for another 42 percent. The tax credits would apply to all income-qualified homebuyers, including those who would have bought without the tax credit incentives. Using the proportions of homebuyers indicated by the third quarter survey results, Campbell Surveys estimates that the total cost of the homebuyer tax credit extension could be as large as $7 billion for current homeowners and $10 billion for first-time homebuyers, for a total of $17 billion.
The Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions involves more than 1,500 real estate agents nationwide and provides up-to-date intelligence on home sales and mortgage usage patterns.
After two weeks of delay, the Senate Monday night cleared the way to pass a seven month extension and expansion of the tax credit for homebuyers. The first-time homebuyer tax credit, due to expire in 27 days, would be extended through June 30 of next year.