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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.

Homebuyer Tax Credit Will Motivate First-time Buyers More than Move-up Buyers

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.

18 comments

  1. I hope a final decision gets made on the tax credit extension tomorrow for home buyers. I’m an existing home buyer who would like to sell their home and move out into the country now that my children have grown up and moved. It’s a good time for buyers, but at the same time it’s lowered the value of our home.

    Our original plan was to stay in this home for 10 years and then sell, using the profits as a downpayment on our next home. As things are now, we won’t make much on our home, if anything at all. The tax credit for existing home owners will help to make up some of the difference in what we would be losing by selling now.

    I can only pray this will encourage more first time buyers to go looking for homes during the slow season so we can sell our home. Our home will be priced in their buyer range.

  2. Where does that leave current sellers scheduled to close on their home before Derc 1 and purchase another home. Will they be denied the credit unless they delay the closings.

  3. Yes. The credit for existing buyers will not be retroactive,

  4. Actually, it is scheduled for a vote in the House today. If it passes, as expected, it will pass Congress.

  5. I just sold my home in September that I was in for 8 years and I just closed on my home Oct 30, will I qualify for the existing homebuyers credit?

  6. I have a client, single woman, who is selling her 1.235 million house and buying a $590,000 house scheduled to close Nov. 16. Her income is under $100,000. Should she try to delay until Dec. 1?

  7. Yes. She can qualify for the $6500 credit if she waits to close after December 1

  8. As long as they wait until after December 1 to close on the new home, they should he fine.

  9. It passed Congress 30 minutes ago.

  10. My sister in law was recently divorced, and during her 3 year marriage was put on her husband’s mortgage but signed off on that as part of divorce decree. She is currently looking for a condo within her reduced means, would she be eligible for any credit in any way?

  11. Question: If you were married and your husband recently died within the past 3-4 months, and you were not on the deed to the house nor were you on any mortgage loan, would you qualify to be a first time homebuyer? Or, since you were married to someone who did own a home, would you be qualified for the $6,500 if you had lived in his home for the past 5 years? Thanks for helping me resolve an issue.

  12. My daughter and son-in-law previously owned a co-op for 2 years and sold it in May 2007. They have been renting to save money and are now in contract to buy a single family home which will be their primary (and only) residence. They expect to settle on this home sometime in December. Will they qualify for any of the credit? If not, this is very unfair as they are young and struggling and putting everything they have into making this purchase.

  13. I’m afraid not. The new credit is not retroacive.

  14. I think the IRS will want to know if she was ever on the deed. If not, she can qualify for the first-time buyers’ credit.

  15. I have not owned a home for over seven years and my boyfriend ownes and has lived in his home for over 30 years. If we purchase a home together would we both qualify for the individual credits?

  16. Joyce,

    That’s an excellent question, and I suggest you contact the IRS directly.

    Steve

  17. Steve,
    I was hoping that my daughter/son-in-law would qualify for the new extension – not necessarily for the first-time homebuyer. Why would the government provide a credit to first-time homebuyers and then extend for individuals who have owned for several years and ignore those individuals who have been renting and waiting on the sidelines for the interest rates to drop so that they could afford a mortgage/house? Especially on Long Island where the property taxes are exorbitant!!! These individuals like my daughter/son-in-law have fallen through the cracks!! Yes??

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