Homebuyer tax credit extension is boon to sellers

Local Realtor Kenneth Jones had two ‘unmotivated’ buyers who have officially been upgraded to ‘motivated’ buyers after the recent passage of the first-time homebuyer tax credit was extended and expanded into May 2010.
“I think there’s going to be a tremendous impact,” said Jones of Kenneth Jones Realty and current president of the Greater Fort Worth Association of Realtors of the tax credit’s expansion. “It’s huge.”

After much lobbying, discussing and negotiating, an expansion and extension of the first-time homebuyer tax credit was approved by Congress on Nov. 5. The current credit, which will end Nov. 30, allots an $8,000 tax credit to first-time homebuyers with an income of no more than $75,000 for individuals or $150,000 for couples. Under the new tax credit, those income caps have been raised and a tax credit also has been added for current homeowners looking to sell and buy a new home.

The first-time buyer credit was extended to any homes under contract as of April 30, 2010, and the income level for the credit was extended to individuals making no more than $125,000 for single buyers and $225,000 for couples. The purchase price of the home cannot exceed $800,000.

In addition, the new version of the tax credit includes a $6,500 tax credit for any home buyer who has lived in the home they are selling, or have sold, as principal residence for five consecutive years in the past eight years. If potential home buyers have a binding contract on or before that date, they will have until July 1, 2010, to close the transaction.

Local real estate experts say the extensions to include a broader income range as well as repeat buyers will have a big impact on the Dallas-Fort Worth market.

“Our business has really increased over the last few months because of it [the first-time homebuyer tax credit]. We’ve seen a lot more closings,” said Carole Wilkinson, vice president/branch manager of Steward Title in Arlington. “But of course now they’ve made modifications and extensions. Just an extension of the program would have been fine, but with the modifications, there are going to be a lot of people who are looking into buying houses and it’s going to be good for everybody.”

In fact, National Association of Realtors economists estimate that the current first-time buyer tax credit has contributed about $22 billion to the national economy, and about 2 million people will take advantage of the tax credit this year. In Texas, NAR reports the home buyer tax credit has brought an additional 26,900 buyers into the market through September and 189,200 first-time buyers will be able to take advantage of the tax credit.

According to NAR, Texas existing home sales in the second half of 2008 were 442,600 at a seasonally adjusted annual rate. NAR estimates sales in Texas could reach 435,500 for the year in Texas in 2009 – and about 177,040 of those purchases were made by first-time buyers at a seasonally adjusted annual rate in the second half of 2008 and will that group will purchase 192,418 for the year 2009.

Jones said he has a few buyers who will take part in those NAR numbers because of the recent extension of the tax credit.

“By increasing the income limits, I’ve got two young buyers who before weren’t motivated because they were outside of the current tax credit’s income limits, but now that they’ve changed, they are definitely motivated,” Jones said.

Robert Gleason, director of governmental affairs for the Greater Fort Worth Association of Realtors, said the credit is likely to motivate lenders and other real estate professionals as well.

“Now that the tax credit has been in place for a while, people are really perfecting how to use it,” Gleason said. “Something positive that’s coming out of it is HUD approved the use of a short-term bridge loan that can be put in place and then buyers can use those funds for additional payments on down payments or to help with closing costs. It’s a good part of it being extended because it’s allowing those programs to take shape.”

The short-term bridge loans still require buyers to put a down payment of at least 3.5 percent on a home purchase, but the bridge loan money can be applied on top of that down payment, Gleason said.

The realtors association advises any buyer thinking about applying the bridge loan in such a matter to “contact their lender for more details as only some lenders perform that type of loan,” Gleason added.

Regardless of the type of loan used to buy the home, though, Gleason said the impact of the tax credit expansion will likely be felt beyond the confinements of the residential market.

“It’s a big economic impact,” Gleason said. “Once someone ends up purchasing, typically that tax credit they received, they spend on upgrades or other purchases for the home, which generates momentum in the economy as well.”

In the mean time, Jones said his firm is hard at work preparing and sending letters to homeowners he or one of his brokers knows might be interested in putting their home on the market if given the right incentive.

“This may be what prompts them to do it,” Jones said. “It may not be something that convinces a home owner to sell, but for those thinking about selling, but not sure, this could be what convinces them to do it.”



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