Monday, July 27, 2009

FIRST-TIME BUYERS SLOW TO TAKE ADVANTAGE OF OBAMA’S TAX CREDIT

As the nation heads into the second half of 2009, experts say the economy is wrestling with hefty unemployment and the housing market is still spinning its wheels. So, just how big of an impact is President Obama’s first-time home-buyer tax credit having on the marketplace?

With the $8,000 federal tax credit for first-time home buyers now half way to its December 1, 2009, expiration date, a new RE/MAX Northern Illinois survey of 40 agents answered the question and perhaps created some new queries.

“First, buyers are generally aware of the simulative impact of the tax credit, however, a majority of them understand only a few, if any, of the program’s details,” said Jim Merrion, regional director of the RE/MAX Northern Illinois real estate network.

The tax credit was a key part of the economic stimulus package approved by Congress and signed by President Obama in February. Designed to encourage home purchases, it can be worth as much as $8,000 in reduced taxes or added income. The RE/MAX agents interviewed for the survey worked with 390 first-time buyers through the first half of 2009. Seventy-three percent of those buyers were aware of the tax credit.

To date, 70 of the 390 buyers—approximately 18 percent—have either purchased a home or have had an offer accepted and are preparing to close the transaction. Most of the remaining buyers are still in the market looking for the right home.

The average price of an existing home in the metropolitan Chicago real estate market was $259,354 during the first-half of 2009, according to the MRED multiple listing service.

The $8,000 credit amounts to a saving of only 3.1 percent of that amount. Perhaps that helps explains why greater numbers of first-time buyers are not flooding the market to take advantage of the tax credit.

Some housing experts are urging not only that tax credit amount be increased to $10,000 or more, but also lobby Congress to expand it to all home buyers to help break the logjam in both the new and used home market.

RE/MAX agents say the tax credit provides a nice financial boost by replenishing the savings they use for a down payment and closing costs or covering some of the incidental expenses that often come with purchasing a first home—everything from buying a lawn mower and putting up wallpaper to acquiring new furniture. The RE/MAX survey also revealed that many first-time buyers don’t have a clear view of the details of the tax credit, so let’s outline them again:

• A home purchase must be closed no later than November 30, 2009 to qualify for the credit.

• To qualify as a first-time buyer you cannot have owned a home for three years before making a home purchase that qualifies for the tax credit. So, if you owned a home earlier, then rented for a few years, you still can qualify for the credit.

• Many buyers are unclear about how the credit will work if they owe taxes for 2009. Let’s suppose a buyer qualifies for the $8,000 tax credit but owes only $3,000 in federal income taxes for the year. The tax credit would erase the entire $3,000 tax bill, and the buyer would receive a refund check for $5,000.

• There are income limits on the tax credit. Individuals with an adjusted gross income up to $75,000 can qualify for the full $8,000 credit, as can married couples earning up to $150,000. However, the available credit amount then declines as income increases and phases out at $95,000 for individuals and $170,000 for couples.

• The first-time buyer tax credit is like a cash gift. It does not have to be repaid unless the home is sold within three years.

• There is no age limit for buyers to qualify for the tax credit. “For example, first-time buyers who purchase a new condominium in an age-55-or-better community like Belle Plaine Commons in Chicago’s North Center neighborhood can take advantage of the perk,” noted Rena Appel, Development Coordinator for North Center Associates LLC, the developer. Prices at Belle Plaine Commons start at $194,990 for 1-bedroom unit and range up to $298,990 for the most expensive 2-bedroom layout.

“If a home purchase is on your radar today, start shopping seriously and close before December 1,” advised Merrion. “You should get the house under contract by September 30th so you have ample time to close the transaction.”