Wednesday, August 31, 2011

The New Homebuyer Tax Credit Won't Die --Should It?

The government has given buyers using the credit another three months to close sales, and the initiative is being imitated on a smaller scale by states and private companies. But some think the market would be better off if we laid it to rest for good.

Karen and Greg Osmon had outgrown the three-bedroom Winston-Salem, N.C., home they lived in with their two children, so they put it up for sale. Unfortunately, they did so in December of 2008, at the height of the financial crisis. With the economy in a downward spiral, they couldn't find a buyer, and when the property didn't move for over a year, they were forced to pull it off the market.
The Osmons decided to try selling again in early May of this year, but they'd missed a chance to capitalize on an incentive that had boosted home sales in the months prior: the first-time homebuyer tax credit, an $8,000 federal rebate whose April 30 deadline boosted sales of new homes in that month by 48% over the previous year, according to the Census Bureau.
So they sought out real estate company Coldwell Banker to handle their sale. The company was marketing its own "credit"--a 3% discount or up to $8,000 off the purchase price for buyers who bought from participating sellers. The Osmons had to bring their price down even further from its original $199,900, but given how sluggish the market was, they were willing.
The Bonus Buyer sales event, as Coldwell Banker called it, attracted enough buyer interest that this time the Osmon's home sold after just over a month on the market.
"We got a lot of traffic really quickly, whereas before we'd go months without a showing," says Karen Osmon. "Being part of the Buyer Bonus program kind of shows your willingness to work with prospective buyers."
Many real estate industry players took note of the new customers the government's homebuyer tax credit brought to the table. And now that it has all but wound down--on Thursday Congress passed a bill giving buyers who had entered contracts before April 30 an extra three months to close their sales--they are looking for ways to imitate its success.

"It's the right thing to do," says Coldwell Banker CEO Jim Gillespie, of his company's program.
Private companies aren't the only organizations looking to offer housing credits: In March the California state legislature passed a bill offering up to $10,000 to homebuyers who purchased between May 1 and the end of the year.
Some say the credit has been a failure and trying to imitate it doesn't make sense. Citing a dramatic drop in home sales after the credit expired, economists say it did little more than pull inevitable summer home sales forward and delay a recovery.

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