Homeowners who have been on the fence about upsizing are going to be more likely to buy now with the $6,500 incentive from the recently extended tax credit, local real estate agents say.
“This is going to put them over the edge,” Mike Pion, a Realtor with Hampden Township-based Keller Williams Realty of Central Pennsylvania.
The Worker, Homeownership and Business Assistance Act of 2009, signed into law Nov. 6 by President Barack Obama, extends through April 30 the popular $8,000 first-time homebuyer tax credit, which was supposed to end Nov. 30.
It also opened up the incentive to current homeowners who have lived in their primary residence for five consecutive years during the past eight years.
Potential homebuyers need to have a binding contract on or before April 30 and will have until June 30 to close on the house in order to get the credits.
“Overall, people are still leery about job security and this might get them over the top,” said Mitch Gelbaugh, an agent with Re/Max Performance Realty of Carlisle.
The initial legislation was a big hit for homes under $200,000, area agents say. By opening it up to prospective repeat buyers who are looking to move up and buy something bigger, that stagnant market above $200,000 figures to open up a little more and boost the inventory for first-time buyers, Pion said.
“Traditionally, it’s slower between November and December,” he said. “I feel this spring is going to be really great. If people are going out to buy, they should take advantage now. The rates are the lowest they have been in years.”
The real estate market is coming back, he added, and this only helps push it along.
Sales of existing homes in October saw their biggest surge in a decade, raising hopes for a turnaround in the housing market and pleasing Wall Street.
While rising foreclosures and disappearing jobs still threaten the comeback, there are now bidding wars for houses in some cities, and home sales are nearly 36 percent above their low point in January.
The National Association of Realtors said resales rose 10.1 percent to a seasonally adjusted annual rate of 6.1 million in October, from 5.5 million in September. It was the biggest monthly increase in a decade and far better than what economists expected, according to Thomson Reuters.
Analysts said the gains mainly reflected the tax credit of up to $8,000 for new homeowners, which was due to expire this month before Congress extended it until spring — and expanded it to more buyers.
The sales figures released Monday provided the juice for a rally on Wall Street. The Dow Jones industrial average, also lifted by a weak dollar, rose more than 130 points.
The extension of the homebuyer tax credit should help sustain the housing market next year, economists said. Yet the overall economy will probably benefit only slightly from higher home sales.
There are still too many factors weighing down the recovery. Foreclosures are rising. Job creation is slow. People remain reluctant to spend. And construction of new homes — as opposed to sales of existing ones — plunged in October.
The biggest contribution the housing industry makes to economic growth is from home building. Commissions and fees generated from home sales also help, but far less than construction.
“I wouldn’t want to bet the house on housing, really, in terms of the strength of the U.S. economy going forward,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.”
South Middleton Township homeowner Lacy Overbaugh said the federal government’s homebuyer tax credit hasn’t helped sell her home, on the market since July. But then again, “we didn’t expect it to help,” she added.
Overbaugh, who shares the home on the 300 block of York Road with her husband and their two children, wants to move into a larger home.
That category of homeowner is exactly the type a clause in the extended tax credit program is geared towards - those who have lived in their home for five years or more and looking to upgrade.
The five-year requirement is just one included in the As far as she knows, Overbaugh said, the tax credit extension hasn’t spurred additional viewings of their home.
But before the Overbaughs can take advantage of the tax credit, they first have to sell their current home, Overbaugh said.
“We haven’t started looking, because we knew this one would take a while,” she said.
Gelbaugh said he is optimistic this credit will help everyone, including the new residential developments that have slowed in the current economy.
“I definitely think it will help everything,” he stated.
Dave Hooke of Hooke, Hooke and Eckman Realtors in Carlisle said he has heard from a lot of clients already, noting their excitement about the extension.
“They are thrilled to hear about it,” he said.
Fourth-quarter and first-quarter sales are typically lower than the second and third quarters, Hooke said. But because of the extension, he expects agencies will see higher numbers than the previous year.
“I am hoping we’re going to see homes a touch higher than $150,000 move quicker,” he said.
Income limits for eligible homebuyers have been expanded under the act to $125,000 for single buyers and $225,000 for couples. The purchase price of the home cannot exceed $800,000.
To help guard against fraud, buyers are required to attach documentation of the purchase to their tax return.
“I believe that we will continue to see an increase in our marketplace, both in the number of sales and stabilization of our marketplace through this tax credit,” Greg Herb, president of the Pennsylvania Association of Realtors, said in a statement.
Fueling the market
For now, the housing market is feeding on the homebuyer tax credit, along with falling home prices and low mortgage rates. Average rates on 30-year mortgages have hovered around 5 percent this fall.
At the current sales pace, there’s a modest seven-month supply of previously occupied homes on the market. Sales are still running 16 percent below their peak in 2005, but real estate agents say the pace has definitely picked up.
“People who are looking, they are serious,” said Harrison Tulloss, an agent with ZipRealty Inc. in the Raleigh-Durham area of North Carolina. “They’re not riding around with me if they need to go shopping or buy a turkey.”
Joey Wilson and her husband made unsuccessful offers on 20 Las Vegas homes starting in midsummer before they closed on a four-bedroom, $136,000 home this month.
“It’s insane,” said Wilson, who relocated from Kentucky. “I’ve never seen a market like this before.”
Reduced home prices and federal programs to lower mortgage rates have brought more buyers into the market. The median sales price was $173,100 in October, down 7 percent from a year earlier and 25 percent below the peak.
Many experts predict prices will hit a new low next spring, perhaps falling 5 to 10 percent further as more foreclosures spill into the market. The government has tried to counter that trend by offering the tax credit and keeping mortgage rates low.
Without the a deadline looming for the tax credit, home sales are likely to fall over the winter as buyers hibernate for a few months. Analysts say the new deadline — buyers have to sign a purchase agreement by April 30 — means sales will surge next spring, before dropping back again later in 2010.
What happens after that is anyone’s guess.
“When we do kick those crutches out from under the housing market, will it be able to stand on its own?” said Mark Fleming, chief economist with First American CoreLogic. “It’s really hard to tell.”
The government has also helped the housing market by acting to lower mortgage rates. The Federal Reserve, for example, has pumped $1.25 trillion into mortgage-backed securities to try to lower mortgage rates and loosen credit. That program is scheduled to end by March.
If rates go up without the government help, homes would be less affordable, which could dampen demand.
A disquieting report last week from the Mortgage Bankers Association said more fixed-rate home loans made to people with good credit were sinking into foreclosure as layoffs go on. A record-high 14 percent of homeowners with a mortgage were either behind on payments or in foreclosure at the end of September.
In areas where foreclosures have hit hard, housing remains depressed, despite low prices, low mortgage rates and the tax credit. Yet for homebuyers with cash and access to credit, falling prices and low mortgage rates have proved irresistible.
The Realtors’ report on October home sales reflects offers made before buyers knew the credit would be extended.
In Raleigh, N.C., first-time buyer Louise Brunson snapped up a three-bedroom town house for $235,000. She and her husband had planned to buy a year and a half ago but decided to wait until prices fell further. The tax credit was a big plus, too.
“We suspected that it might be extended,” said Brunson, a paralegal. “But we did want to go ahead and get it done to be on the safe side.”
The Associated Press contributed to this report