Home Buyers Rush to Take Advantage of Tax Credit Before It's Gone

Current homeowners buying a house between Nov. 7, 2009, and April 30 and who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight can qualify for the $6,500. It seems less is known about the repeat buyer credit. This incentive was added when the original $8,000 tax credit for qualified first-time buyers, which expired Nov. 30, was extended.

Houses purchased for $800,000 or less are eligible for repeat buyers. Single buyers with incomes up to $125,000 and married couples up to $225,000 may receive the maximum tax credit for both repeat and first-time purchases. The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Buyers earning more than the maximum are not eligible for the credit. If a binding written contract to purchase is in effect April 30, the purchaser will have until July 1, 2010 to close.

The 2009 credit for first-timers helped jump-start the sagging home market in the summer and fall, data show. Walt Molony, a National Association of Realtors (NAR) spokesman, said two million existing-home sales in 2009 could be attributed to the $8,000 first-time buyer credit. Although it is too early to measure the credit’s effect on sales so far this year, Molony said NAR chief economist Lawrence Yun believes it will add 1.5 million sales to the tally.

The repeat-buyer credit was added to appease builders, who said the original did not offer enough time to purchasers of new houses, which take at least six months to build, to close on them. New homes accounted for only 7% of the tax-credit-based sales, Molony said.

The National Association of Homebuilders’ Donna Reichle said, “We hear builders saying they are getting inquiries, but that’s all so far. According to our economists, it’s way too early,” Reichle said. “If you look back at the passage of the original $8,000 credit and impact on housing starts, it took a couple of months, and that was in the spring as well.”

Moody’s Economy.com chief economist Mark Zandi says the credit will boost sales “modestly,” however, by 300,000, with one-third trade-up buyers. “I don’t expect the credit to be extended again,” Zandi said. “Each time it is extended, it becomes less effective and thus more costly.”

This is also true in the region’s new-home market, said Wayne Norris, regional sales manager for Hanley Wood Market Intelligence. “Builders have experienced increased activity in recent months” attributable to the $6,500 credit and “the fact that many potential buyers were able to sell their houses” to those taking advantage of the first-time buyer credit,” he said. The sense of urgency to make the tax-credit deadline and fears of rising interest rates will push new-home sales higher in the spring, Norris said.