Tax credit extension gives new buyers more time
Real estate experts said the latest extension of the homebuyer tax credit will help decrease the large supply of housing still on the market in Northern Nevada.
Earlier this month, the newest version of the popular tax credit was signed into law, which an estimated 1.4 million Americans have already used, according to the Internal Revenue Service.
The credit now covers first-time homebuyers up to $8,000 and current homeowners looking to buy a new home up to $6,500. Unlike the first version, which was signed into law in September 2008, the new tax credit does not need to be paid back.
Michelle Wood, 29, and Nathan Wood, 26, were among the first homeowners to use the tax credit when they purchased their 1,600 square-foot Dayton home for $201,000 in November 2008.
“For the most part the tax credit helped us in the sense that I had some debt, she had a little bit of debt, so it gave us a chance to pay off some bills … which ultimately helped us be here,” Nathan Wood said. “It worked out, it did its job.”
The Woods purchased the house last year assuming the tax credit would not be extended beyond its Jan. 31 deadline. But in February, Congress extended the program in the $787 billion stimulus bill, giving it a deadline of Nov. 30.
Now, under a new bill signed into law Nov. 6, the program will continue through April 30, 2010, for homebuyers who have bought or are bidding to buy a home. Potential buyers have until June 30, 2010, to close on the home to take advantage of the tax credit.
First-time homebuyers also are pouring into the market, accounting for a record high of 47 percent of all home sales in the past year, up from 41 percent in 2008 and a record low of 36 percent in 2006, according to a survey from the National Association of Realtors released earlier this month. The previous high was 41 percent in 1991.
Moreover, home sales are expected to climb 2 percent this year to 5.01 million and will continue to gain 13.6 percent in 2010 to 5.69 million, according to the NAR.
The Commerce Department said Wednesday that home sales rose 6.2 percent to a seasonally adjusted annual rate of 430,000 from an upwardly revised 405,000 in September. Economists surveyed by Thomson Reuters, a New York-based business news service, had expected a pace of 410,000.
There were 239,000 new homes for sale at the end of October, the lowest inventory level in nearly four decades. At the current sales pace, that’s a 6.7 months of supply, down from last winter’s peak of more than a year.
The report tallies signed contracts to buy homes, rather than completed sales. Home shoppers in October were acting before lawmakers decided to extend a tax credit for first-time buyers and expand it to some existing homeowners.
“It’s all thanks to the government,” said Jennifer Lee, an economist at BMO Capital Markets, a national financial firm. Sales are up 31 percent from the bottom in January, but down 69 percent from their peak in July 2005.
The inventory for active home listings in Carson City has fallen to 399 this year from 771 in 2008, meaning the state capital now has 11 months of housing inventory down from 22 months, said Dan Smith, president of the Sierra Nevada Association of Realtors.
“The inventory as far as months on hand has been cut in half,” Smith said. “Now typically economists will tell you six months inventory is a neutral market. It’s still a buyer’s market, it’s still a good time to buy.”
Smith said the extension of the homebuyers credit will continue to serve as a stimulus to the local housing industry.
“The extension of the timeframe took the pressure off of people who were desperately trying to find the right home and beat the deadline,” Smith said. “Now they have the opportunity to do more looking. The length of time allows people to consider purchasing a short sale, which typically takes longer to close.”
Charles Kitchen of Charles Kitchen Realty said the program has given Americans an incentive to purchase homes now instead of later, helping to reduce an inflated housing inventory.
“Just as with the Cash for Clunkers there’s that cost to the government that may be excessive,” Kitchen said. “But that’s debatable. It’s a program that has worked across the country.”
Since last year, Mike Enright of Valley Realty and Management said he’s helped 10 young couples find homes, all of them using the tax credit.
“It’s really been kind of a neat thing for the kids,” Enright said.
• The Associated Press contributed to this report.