Tax Credit Fails to Help in Tight Market

Date: Nov. 20th, 2009
Contact: Paula Moore Denver Business Journal
Denver-area residential brokers are happy the federal government extended its homebuyer tax credit program in early November, saying it shows the Obama administration is continuing efforts to stimulate the economy and restore consumer confidence.

But some brokers think the credits won't do much good locally, because of a lack of the relatively low-priced homes up for sale that attract consumers who can take advantage of the credits.

Local residential real experts also see the new homebuyer credits, which expire April 30, 2010, as the beginning of the federal government weaning home shoppers off such credits. "I don't expect an extension of these credits," said independent residential broker Gary Bauer of Littleton.

President Barack Obama signed into law on Nov. 6 a federal bill extending this year's $8,000 first-time homebuyer tax credit until next April, with a deadline for home closing of June 30. The first-time buyer credit was scheduled to expire Nov. 30.

The legislation also added a $6,500 credit for repeat homebuyers.

The government defines first-time buyers as those who haven't owned a home in three years. Repeat buyers include existing owners who have been in their homes at least five years in a row. But want to get into bigger homes - or, as in the case of empty-nesters, smaller ones.

"Our market for homes priced at under $200,000 is already overheated; it doesn't need a lot of tax breaks to encourage sales. ...If current indications in the housing market continue, the lowerish market will have recovered in the next six months," said Charles Roberts, broker-owner at the Your Castle Real Estate, LLC residential real estate brokerage firm of Littleton. "We won't need tax credits."

As of Oct. 1, standard single-family houses priced at $85,000 and under had less than one month's inventory, while homes priced at $85,000 to $135,000 had a 1.8-month supply, according to data from Your Castle and local home-sale data provider Metrolist Inc. Houses with price tags of $135,000 to $210,000 had a 2.9-month inventory.

The housing price range that needs stimulating is the $460,000-plus one, which has a 20-month inventory, brokers said.

The inventory of lower-priced home up for sale is so low largely because of the success of the 2009 first-time homebuyer tax credit, which succeeded the Bush administration's $7,500 repayable credit of 2008, according to residential brokers. This year's credit has helped especially to get bargain-priced foreclosure homes off the market.

"For the first seven to eight months of this year in the Denver market, 40 percent of home transactions were by first-time buyers. ... I have a first-time buyer, and we're just sitting in waiting mode," Bauer said. "when a model fo the home he wants comes on the market, we're trying to be the fist to get in and get a shot at it."

Derek Francis-Diamond, a Sports Authority salesman and client of Charles Roberts who moved to metro Denver a few months ago from Arlington, VA, wants to buy his first house for $120,000 to $150,000 and bring in roommates to help defray the cost. The avid skier said he hopes to find "a good number of homes" in that price range, preferably in the western metro area close to the mountains, but he hadn't started looking for houses yet as of mid-November.

"I would like to use the first-time homebuyer tax credit; it's one of the things I'm hoping for," Francis-Diamond said.

The metro-area inventory of for-sale homes could go up at the beginning of 2010, if consumer confidence improves and banks put more houses they've taken back in foreclosures on the market, according to some brokers.

Homeowners wanting to sell their homes, but who have held off fearing they won't get a good price, may put those homes on the market next year. Brokers hope such owners will want to take advantage of the $6,500 repeat buyer tax credit to purchase a bigger home or, as with many empty-nesters, go into a smaller house or condo.

"Some homeowners are sitting there not knowing what to do," said Kay Watson, broker-owner of K. Watson Properties-Metro Brokers in Centennial. "If they have good job stability, the repeat buyer credit may be the thing that will help them make a decision. They've lost some equity, but this credit may be enough to encourage them to move in the larger house they need...or to move down. ...It will all hinge on job stability."

Although repeat buyers probably will add home inventory to the market, they also could take it away when they purchase new homes. "While the number of sales should increase because of repeat buyers, they'll be a washout for inventory," Roberts said.

Shannon Peer, counseling manager at Brothers Redevelopment Inc. in Denver, likes that the new homebuyer tax credits are trying to cut down on fraud by requiring documentation of a closed sale, and that they could generate more home sales. But Peer worries that the credits might also push buyers into the market who shouldn't be there yet.

"Somebody might use a homebuyer tax credit to get in over their heads [with their mortgage]," Peer said. They're OK the first year they own the home, when they have the credit, but the second year comes around, and the tax credit isn't there. We need to use these incentives wisely."

Brothers Redevelopment is a nonprofit that provides housing services to low-income consumers, including homebuyer education.