Tax Credit: Expand? Extend? Expire?

The question everyone is asking is, will the government expand, extend or simply let the $8,000 first time home buyer tax credit expire. With just over 50 days left until it expires, the debate is on and everyone is waiting on pins and needles to hear the result.

Whichever side you take on the debate, what you can’t deny is the fact that nothing has done more in the past year to jumpstart our housing market than the $8,000 first time home buyer credit. Will all of that come tumbling down if it isn’t extended or expanded on? It’s hard to say but I believe that if it isn’t expanded we will see a definite drop in first time home buyers in 2010 and probably a much larger emergence of investors in the entry level arena. While on the surface that may not seem troubling, it actually is. The fact is that investors purchase homes solely for net profit while first time home buyers purchase homes for lifestyle. When we have a balance between the two it keeps home prices relatively stable. If one of the two disappears, we’ll likely start to see drops in home prices which isn’t good for a market that has already taken its fair share of hits.

While Congress continues to debate the issue what we as Realtors are calling for is support of an expansion of the tax credit from first-time buyers to all homebuyers, increasing the maximum amount of the tax credit from $8,000 to $15,000, eliminating the existing income caps for eligibility purposes and extending this homebuyer tax credit for one year from the date of enactment.

We believe that stimulating demand for housing—particularly in the repeat buyer market—is the most effective way for Congress to help lead the U.S. economy into a recovery and back on the path to growth. Timing is critical and we hope that Congress will hear our voices.
While the clock ticks and we await the results of the debate on Capitol Hill, let’s take a look at this week in real estate:

• Davis County—The Bountiful office reports the number of listings taken for the office is down, but open gross profit for the office is up slightly. Buyers seem to be serious about getting deals done before November, but there is no big surge of buyers flocking to the market. We've had two multiple offer situations in the last month that we take as a good sign but no real data to predict any future trends. Every new day is fun and exciting in Bountiful.
• Salt Lake County North—The Salt Lake office reports buyers are starting to feel confident enough to make offers on properties. However they are looking for deals, and they are being really picky on inspections. Buyers will walk away unless they get what they want. Sellers need to have their properties priced right and in good condition to get an offer and have that offer close. Union Heights reports the market continues to be OK. Not stellar…..activity remains inconsistent…mostly in the lower price ranges below $300k. Sugar House reports the market has slowed with transactions, down for September. Open house activity is starting to pick up.
• Salt Lake County South— The buyer’s market is really active in the first time buyer range. Seeing multiple offers on well priced homes. Listing inventory is moving in the same price range. Sellers are beginning to adjust to the market place or just admitting they can't sell their property for what they want and are taking it off the market
• Salt Lake County West— In the West Jordan Office we're seeing a last minute push for buyers to find a property and take advantage of the tax credit. Most of these Buyers are not looking at Short Sales at all. We're still seeing more activity below $300,000 with only 12% of our sales for September being over $300,000; with the majority being under $250,000 (68%).
• Tooele County—Our Tooele office reports after a slow August, September sales activity picked up and accepted offers were as strong as we've been in 09. The listing inventory is stable, therefore, we're listing and closing at about the same rate.
• Utah County— Inventory continues to decline, dropping 6% in September over August from 4182 to 3960. Percentage of Short Sales continue to increase from 21% of the listing inventory to 23% in September. This may be in part because of the lengthy time frame Short Sales are being kept active while waiting for bank approval. Sells were down 17% in September over August. Active buyers are following what may be a seasonal trend by declining. However open units are bucking seasonal trend by increasing 4.6% over August; this is possibly fueled by first time buyers wanting to take advantage of the tax credit.
• Weber County— Sales for September were very close to being on par with September 2008 numbers. We had a couple multiple offer situations. Listing inventory is off significantly from 2008 numbers. We are at about 70% of last year’s inventory.

Commentary from Melissa Wright of Axiom Financial:

"Short Sale." It sounds so much nicer than "Foreclosure" but is it? A short sale is when the lender, investor and/or mortgage insurer approves the sale of a property to a new buyer for less than the original amount of the "mortgage loan. There seems to be a myth floating around out there that a short sale is better for your credit than a foreclosure, this is not the case. A short sale carries the same 200-300 point hit to your credit score as a foreclosure and will remain on your credit report for seven years. Don't give in to despair, there is still hope for the future. Rebuilding your credit will be critical to you being able to purchase another home in the future, after the specified waiting period. The waiting period, beginning the day the title of the home has been transferred back to the lender or new buyer; varies depending on the type of financing chosen. FHA - 3 years - VA - Conventional - 2 years. Agents should make sure their sellers and buyers are well informed about the risks and requirements associated with entering into a short sale or foreclosure situation. It can be a long grueling process, make sure to get a mortgage professional involved early on in the process.

Here are a few informative links regarding the $8,000 tax credit that you may find helpful:

• Update: Industry Makes Case For Home Buyer Tax-Credit Extension; Wall Street Journal
• Builders Urge Congress To Act On Home Buyer Tax Credit, Appraisal And Lending Issues; National Association of Home Builders
• Homebuyer Tax Credit Best Tool For Sustaining Housing Recovery, Says NAR; NAR
• Make The Home Buyer Tax Credit More Easily Available At Closing; RISMedia
• 1.4 Million Families Have Taken Advantage Of First-Time Home Buyer Tax Credit, More Claims Expected; RISMedia

Until next week,
Make it a great one,

Dan Christensen
Coldwell Banker Residential Brokerage Utah