Many of you have heard that the First Time Home Buyer Tax Credit has been expanded and extended which I believe will keep the real estate industry from coming to a complete standstill after the original November 30, 2009 deadline. The new deadline is that you must be under contract by May 1, 2010 but must close by June 30, 2010 to collect the credit. They also raised the annual income limit from $75,000 to $125,000 for a single person and from $150,000 to $225,000 for a married couple.
Naysayers against both the previous Tax Credit and current version stated that a lot of First Time Home Buyer’s would have bought anyway so the credit really didn’t impact the economy. That’s easy to say because the American Dream is home ownership - most young people aspire to own their own home one day. The reality is that the tax credit was the carrot dangled in front of them to get many who would have normally put it off for years to go ahead, save dramatically, and then purchase; knowing they could replenish their savings account after they got their tax refund. I personally had a number of clients who did just that, saved for a couple of months to afford the 3.5% down on FHA loans and then purchased their own home in order to get the $8000 credit. Their attitude was “why not take advantage of free money!” and they were stimulating our local economy at the same time!
The “Twist” to the new credit is that they have now included current home owners with a $6500 credit which I believe will positively impact our industry and the local economy for sure. For one thing, we are about out of suitable homes for first time home buyers to buy. By suitable I mean under $150,000 and in good condition to meet loan underwriter guidelines. So with the new credit to existing homeowners, they can now buy up and provide inventory for the first time buyers! To qualify for the credit as a current home owner you must have lived in your current home for 5 consecutive years over the previous 8 years and meet the same income guidelines of the first time buyer. They are eligible for the credit from now until May 1, 2010 to be under contract and must close by June 30, 2010.
The challenge of the move up buyer will be pricing their current home so that they can have it under contract and close in time for them to meet the tax credit deadlines. Our sales numbers have improved so that we now have a 10.5 month inventory of homes (up from a 15 month inventory in February of this year) on the market now. This means, if we list no more homes, at the rate we are currently closing properties, it would take 10.5 months to sell everything currently on the market. Current home owners now have just 5 months (I’m writing this in early November) to get their existing home under contract and then choose their new home. This means pricing the current home to sell in less than half the time of the current market! We believe in the 30/30 rule of home marketing - compared to the competition the home needs to be in the top 30% in condition and the bottom 30% in price to sell ahead of the market. The current home owners must decide if it is worth $6500 to do that - and it is if they need a newer or larger home! But that is another article!
