Study backs up calls to extend homebuyer tax credit
The $8,000 tax credit to qualified first-time buyers has directly resulted in 357,000 home sales between Feb. 17 and Sept. 15, data released yesterday show.
The $8,000 tax credit to qualified first-time buyers has directly resulted in 357,000 home sales between Feb. 17 and Sept. 15, data released yesterday show.
The data, compiled by Campbell Surveys of Washington, D.C., adds support to calls for extending the credit past its Nov. 30 deadline. Legislation to do so is pending in both the U.S. Senate and House of Representatives.
"We're looking for one more year, to Nov. 30, 2010, and extending the $8,000 credit to all primary-home buyers," said economist Robert Dietz of the National Association of Home Builders.
Using transaction information obtained from real estate agents, Campbell Surveys found first-time buyers accounted for 32 percent of home sales before passage of the American Recovery and Reinvestment Act on Feb. 17, and 42 percent to 43 percent in ensuing months.
"Interestingly, our resulting estimate of 357,000 incremental sales due to the first-time homebuyer tax credit, for the period March through mid-September, is nearly identical to the [National Association of Realtors] estimate and also in the same range as the Moody's Economy.com estimate," said research director Thomas Popik.
Chief economist Mark Zandi of Moody's calculated that 175,000 home sales "that would not have occurred otherwise" had been completed by July, and expects 400,000 more by Nov. 30.
The credit has been a "substantive and important" boost to sales, he said.
The Realtor group's estimate of an additional 350,000 existing-home sales this year means "sales will rise about 1 percent this year to 4.97 million, vs. a 6 percent decline without the tax credit," said NAR's Walt Molony.
"Because the recovery is fragile and we will be seeing additional foreclosures coming into the market over the next year, we need to maintain incentives to absorb inventory and stabilize home prices," Molony said.
Surprisingly, even the 2008 $7,000 first-timers tax credit, to be repaid as a no-interest loan over 15 years, was responsible for 560,000 sales, Dietz said, quoting Internal Revenue Service data.
Thus far, 1.4 million taxpayers have claimed the credits, the IRS reported.
Marshal Granor gives the $8,000 credit a thumbs up.
"These folks come in and immediately ask what we have in inventory we can deliver before Nov. 30," said Granor, principal in Granor Price Homes of Horsham.
While these buyers seem to know the tax rules, "they don't know what buying a house is all about, and expect it can be completed - mortgage and all - in a few days or weeks," he said.
There will be either big disappointments from people waiting too long, or a lot of seller financing so the deed can be recorded before Nov. 30, with the actual mortgage transaction completed after that date, Granor said.
In the city, Prudential Fox & Roach agent Jeff Block says there is a lot of first-time activity at prices below $425,000.
"Several who say they plan to take advantage of the credit have looked at numerous places and still not made a decision," he said. "Ultimately, they say that 'finding the right place' trumps the 'have to buy now' mentality."
Economist Patrick Newport considers the Campbell analysis "pretty good," and warns that if the credit expires, home prices will fall 5 percent more from current levels, "as rising foreclosures and a glut of unsold homes come back to center stage."
"Housing starts and sales will also take a hit - not a huge hit, but one big enough to keep existing home sales declining during the first half of 2010," said Newport, of IHS Global Insight in Lexington, Mass.
His "gut feeling" is that Congress will extend.
Other economists share Newport's viewpoint.
Jeffrey Otteau of Otteau Valuation Group of New Brunswick, N.J., said because the housing market is in "the throes of stabilization," the "inside talk" favors extension.
"If it is [extended], the chance of a relapse falls to 20 percent. If it isn't, the chance rises to 40 percent," he said, adding that interest rates and employment were also variables.
Granor believes if the incentive ends, there will be a return to slow, tortuous sales.
"Might it be nice to extend it?" Granor asked. "Sure, but not right away. If people think all offers can be extended, they may wait it out again."
Rising Home Sales
Data show an increase in U.S. home sales since the $8,000 federal tax credit for first-time buyers began.
First-time
Month All home sales buyers
Jan. 281,000 32%
Feb. 309,000 32
March 388,000 43
April 445,000 43
May 481,000 43
June 557,000 43
July 571,000 42
Aug.* 571,000 43
Sept. 1-15* 285,500 43
SOURCE: National Association of Realtors, US Census Bureau, Campbell Surveys
* estimateEndText