Copy for Real Estate Guide Column for 11-6-09

REAL ESTATE PATTERNS
By Ken DuVall

THE TAX CREDIT SCENARIO

Congress is considering proposals to expand the soon-to-expire $8,000 tax credit for first-time homebuyers, potentially applying it to all but the wealthiest. Supporters say doing so would further boost home sales, stabilize housing prices, and generate jobs. The credit now can be claimed by anyone buying a home who has not owned one for 3 years and who closes the deal by Nov. 30. It’s too late unless you pay cash.

Beyond extending the deadline, some lawmakers want to make the credit available to all homebuyers who meet income eligibility requirements. And increase the amount of the credit to $15,000. Currently the first-time home buyer credit is available to individuals buying their primary residence earning $75,000 or less, $150,000 for joint filers. First time buyers accounted for fully 45% of all 2009 sales.

By the end of November, the credit is estimated to have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, so it was a good thing. The bad news is the program will cost the IRS over $10 billion in lost revenue. Lobbying is under way to extend the current credit until March, 2010.

Economists predict 2010 will be the first year since 2005 for housing to again contribute to the growth of the U.S. economy. After a steep 3 year decline, existing home prices in 20 metros have rebounded since February by almost 7%. Prices are expected to rise 2% next year, but forecasters don’t believe the increase in prices will discourage homebuyers. Over 80% of economists surveyed think the recession is over and recovery has begun, but they expect the expansion to be slow as continuing unemployment persists.

U.S. existing home sales in September posted their largest monthly gain in over 14 years as consumers rushed to take advantage of the tax credit, rising 9.4% to a 5.57 million home annual pace. The tax credit has induced buyers back into the market, helping to stabilize prices. The foundation for the eventual recovery in the U.S. housing market is now being laid. Meanwhile, new home sales fell 3.6%. But the median price was off only 9.1% compared to a year ago, a sign that we may be on the mend. Unsold inventory remained unchanged and acceptable, a good thing.

However, the tax credit has come under serious scrutiny as reports of widespread fraud have emerged. The crooks among us jump on any new program as soon as it hits the street. Just like Medicare fraud to the tune of a $90 billion annual rip off. It’s disgusting.

There is speculation as to whether the pace of home sales would drop if the program ends. Should sales slow substantially, as was the case with auto sales after the “Cash for Clunkers” program expired, it could cause new undermining of our fragile housing market. The debate will likely become more heated as a decision on this pivotal housing issue materializes in coming weeks. Stand by.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings and all my columns at www.KenDuVall.com. Call Ken at 345-3700 for all your real estate needs. Free consulting.