Just a week after President Obama signed into law an expanded homebuyers’ tax credit for existing owners and a continuation of the credit for first-time buyers, home sales activity across the country is picking up even though we are entering a period when sales usually slow down as the holidays approach.
Reports from markets around the nation suggest that the ink on the President signature barely dried before first-time buyers, who had suspended their home searches as the deadline for the 2009 credit neared, jumped back into the market. Move up buyers, who have been frustrated for years by falling values and soaring inventories that have made it hard to sell their existing homes, called their real estate agents to find out if the new credit would provide enough assistance to get them out of their old home and into a new one.
In Gold Beach, on the south Oregon coast, there are 18 pending sales this November compared to zero pending sales a year ago. “Since the middle of September the real estate market has just exploded,” said a local Realtor. “Most of the summer the homes that were being looked at were the homes around $200,000 where first-time buyers finally felt that the prices were low enough that they could finally afford a home.
In Washington State, Realtors across the state credited the first-time buyer tax credit, originally set to expire at the end of November. At a time of year that traditionally sees a drop-off in activity, the number of pending and closed sales have rebounded to late 2007 levels as the local market was already declining on the eve of a national recession.
In Iowa, Des Moines-area home sales rose nearly 39 percent in October, and local real estate leaders hope an expanded federal tax credit will drive sales beyond the first-time homebuyer market.
The new credits should help Iowa’s housing market through the winter, the slowest time of the year for the Iowa real estate industry, said Brennan Buckley, an Iowa Realty spokesman. “We hope by spring, the economy will have picked up. I think we’ll get a lot of move-up buyers who had been on the fence, especially when they look at where interest rates are compared to five years ago,” Buckley said.
Erika Hansen, a Coldwell Banker Mid-America Group real estate agent, said she already sees homeowners reconsidering taking their homes off the market for winter. It should bring some needed inventory to the market, she told the Des Moines Register. “There’s really not as much out there as people think,” Hansen said.
Trisha Peters said it was a mixture of reasons - from family to a desire to change home styles - that prompted her to put her Des Moines home on the market. The tax credits made the decision easier. Peters expects her home will appeal to first-time buyers, and her $6,500 credit will help if she’s unable to get what she paid for her condo.
“My home is worth less than it was two or three years ago, but the homes I’m looking at are priced lower, too. So, things even out. “It’s really a perfect storm for buyers,” said Peters, who added that low interest rates - now below 5 percent - were key in her decision. “That kind of good fortune doesn’t usually happen to me,” she told the Register.
In the resort community of Cape May, New Jersey, the first-time buyer credit has resulted in a clear up tick in sales of low to moderately priced homes within Cape May County, according to local Realtors. Now the problem slowing sales is the backlog of applications overloading lenders.
In the resort community of Wildwood Crest, New Jersey, many of the buyers who can afford to purchase first homes in the Crest fall outside the income bracket guidelines for the program.
“Everyone who hears about it at first says ‘oh, great,’ but then they realize they don’t qualify,” Cabrera told the Shore News Daily.
In Bakersfield, Calif., where more than half of mortgages are upside down, there is a limit to what the new tax credit can do for existing homeowners who want to step up, said Raul Rodriguez, a mortgage broker for Mary Cruz Realty in Bakersfield.
“Obviously they’d have to sell their old house before they could buy a new one, and a lot of people can’t sell their homes right now,” Rodriguez told the Bakersfield Californian.
Real estate broker-owner Nance Fillmore said both tax credits are critical to the Bakersfield area because much of the inventory here is lender-owned and was vandalized or neglected by the previous owner.
“This tax credit gives buyers some money to make repairs, or it creates a buffer zone for them to replenish the savings they used to make a purchase,” she said.
Buyers have until April 30 to find a home if they want to qualify for the credits, which don’t actually expire until June 30, leaving two months to close. The program is expected to cost about the $16.7 billion.
How many sales the two new credits will generate is anybody’s guess. The 2009 first-time buyers’ credit will added between 200,000 and 400,000 new sales that would not have taken place without the credit. Only 70 percent of existing buyers qualify for the new credit because of residency restrictions, according to a Goldman Sachs study, and many believe the only change in the first-time buyer credit, raising income limits, affects only 14 percent of first-timers.
The impact of the existing buyer credit is even more difficult to assess. In addition to the problems facing many move-up buyers such as negative equity in their existing homes and low resale prices, the credit is worth less to them compared to first-time buyers.
A survey released last week by Campbell Communications/Inside Mortgage Finance found that the credit gives existing homeowners only half as much incentive to buy a home as first-time buyers. Because of the lesser value of the credit and the higher median price of move-up homes, the credit only accounts for two percent of the cost of an average move-up home as opposed to four percent of a first-time buyer’s starter home, according to the study.