Tax Credit Extension Q & A

The Tax Credit Extension Should Boost Sales For Many Homebuyers - A Real Positive For Our Tulsa Economy

Dec 5, 2009

The federal first-time homebuyer's tax credit has really helped our Tulsa market remain robust in recent months. It's time for people with hopefully more money in their pockets to get the same deal, although not quite as big a break as the first-time buyers.
When President Obama signed the extension of the tax credit on November 6th, real estate experts felt that momentum would build in the market for more expensive homes. Although the cap on the first-time credit remains at $8,000, the income limits for first-time buyers were increased and a new tax credit of $6,500 was created for home-owners who have lived in their current residence for at least five years, but owned the home for a total of 8.
The new income limits for both kinds of credits are now $125,000 for individual buyers and $225,000 for couples. Anyone making more than those limits can claim diminishing credits.
Tulsa has some folks that are young and affluent and our city has an abundance of wealthy buyers for their age group, and for those fortunate buyers, this is a wonderful gift.
The "step-up" credit, available for the purchase of principal homes costing $800,000 or less, is well timed. We are finally seeing some larger homes selling that have been on the market for a while. As a result, home sales in the upper brackets have been among the most depressed over the past year, simply due to the economic winds shifting with each day.
Many banks really want to make home loans, so what you hear and read in the press about the total credit freeze is simply untrue, even on homes where the mortgage would exceed the current $417,000 ceiling under the high-cost market purchase limit for Fannie Mae and Freddie Mac.
We have seen a continuing steady market, which can partly be attributed to the rush to beat the November 30th home sale/closing deadline under the original tax credit program. Now, with the new law, the buyer’s clock has been re-set to get homes under contract by April 30, 2010 and closed by June 30, 2010.
That could move up the traditional buying season as higher-income buyers rush in to take advantage of the tax credit.
I would say that our typical winter slow-down in the Tulsa area from December through March will be anything but typical. There is a now a true sense of urgency, and we can all hope that the cold winter months will seem more like a normal spring market, which is ordinarily the busy time in the real estate industry.
It would have been nice if the administration and lawmakers would have simply opened up the tax credit to everyone, as it would have allowed a much larger participation in the home marketplace, and would have been a quicker, larger boost to our economy. The new law allows a homebuyer to claim the $6,500 credit without selling their existing home. This will allow homeowners to benefit from the program while renting out their soon to be primary residences, whether they are having trouble selling or just want to keep an income-producing property -- as long as they buy something new.

Here’s The Meat & Potatoes Of The Matter:

Who can receive, and how much can they claim? Most first-time home buyers are eligible for up to $8,000 on the tax credit, which is the same as the current credit. The bill creates a new credit of up to $6,500 for homeowners who have lived in their homes for five years; that provision went into effect on 12/01/2009.
How long will it last? The tax credits will expire on April 30, 2010, but home buyers under contract by April 30 will be able to qualify as long as they complete the sale within 60 days. Please remember, this will be the third iteration of a home buyer tax credit that has been in place since mid-2008.
Will the tax credit do anything for the high-end of the market? It may help a bit, but you should remember that there are income limitations associated with the credit. Also, homes that cost more than $800,000 aren’t eligible for the credit. To be blunt, many well-paid people will take advantage of it, although it won’t make a huge difference. A household earning around $150,000 is likely to buy a home of $300,000 to $600,000, so a $6,500 credit won’t be much of a factor in pushing these households out into the market, but if they are like most of us, every little bit helps and it will definitely assist the economic recovery.
So will the expanded tax credit help sales? That’s a point of debate among housing analysts and economists. The expanding of the tax credit to people who already own homes does not really greatly impact the supply of housing on the market, but it will help get some of the inventory off the books of builders and banks that are stuck holding inventory they do not want or need. If these new buyers who already own a home and sell it to finance the new one, then it has not put a big dent in the amount of homes for sale.
What we have right now are some of the best interest rates we’ve seen since May, 2009combined with the extension of the tax credit. It is a time to be optimistic and every person now considering buying a home, shouldn't procrastinate, but get pre-approved and begin the house hunting process to beat this new deadline. It will keep our Tulsa economy strong and we’ll see more job growth if homes continue to sell. Get in the game! Act now and contact a residential lender here at ONB for pre-approval and then contact Darryl Baskin or any member of his team to find and negotiate the deal for your home purchase.

Jeff Sargent
President
Residential Lending Division
ONB Bank & Trust Co
Office: 918.392.6572
Cell: 918.636.0630
Fax: 918.392.6550
jeff_sargent@onbbank.com