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Housing Won’t Be Derailed by End of U.S. Tax Credit, Agents Say
The expiration of a government tax credit yesterday may slow, rather than derail, a budding rebound in U.S. home sales being fueled by the drop property values, according to real-estate executives.
“The meat and potatoes about the housing recovery and the reason to get out and buy a house now is affordability,” Jeffrey Detwiler, president and chief operating officer of Long & Foster Cos., a private real-estate company based in Chantilly, Virginia, said in an interview. “The tax credit right now is simply the gravy on top of that.”
The National Association of Realtors projects sales of existing homes will rise 6.6 percent this year to 5.49 million as a drop in prices, near record-low mortgage rates and growing incomes sustain demand beyond the recent pickup spurred by a government incentive worth as much as $8,000. Buyers need to have signed a contract by yesterday and close on the deal by the end of June to be eligible for the credit.
The rush to qualify for the credit helped boost home resales, which are tabulated at closing, by 6.8 percent in March and will support these figures through June. Purchases of new houses, tabulated when a contract is signed, surged 27 percent two months ago, the biggest jump since 1963, according to data from the Commerce Department.
The government incentive, originally designed to expire last November, “has done its job,” and the economy has improved enough for the credit to lapse, NAR Chief Economist Lawrence Yun said April 22.
The extension of the tax break and its expansion to include some current owners has failed to drum up as much demand this year as last. Sales of existing homes jumped to a 6.49 million pace in November, the most in more than two years.
“You keep extending it and you lose the credibility that it’s a temporary credit and its power,” said David Crowe, chief economist at the National Association of Home Builders. Crowe said he’s “still pretty confident that all the other ingredients are in the right place” for housing to improve on its own.
Low prices and mortgage rates are also influencing sales. The National Association of Realtors’ affordability index, which takes into account property values, mortgage rates and incomes, stood at 176 in February, eight points off the record-high reached in January 2009. Readings of 100 mean the households earning the median income can afford the median-priced home at current borrowing costs.
“Our market is going to improve as the economy improves,” Dave Liniger, chairman and co-founder of Re/Max International Inc., a Denver-based owner of real-estate agencies, said in an interview. “It looks like the bottom has been reached.”
Nonetheless, Liniger says it will take two or three years for housing to recover and resemble “a normal market.” “The consumer factors and the unemployment rate are going to be a drag on housing for the next two or three years.”
Realtors are trying to maintain sales momentum by promoting other incentives. Parsippany, New Jersey-based Coldwell Banker Real Estate LLC is starting a program today that encourages sellers to offer a credit up to $8,000 to buyers in most states who sign a contract before July 31.
Thirty-four percent of the agents surveyed by Coldwell Banker cited the government’s extension of the tax credit as the main reason their customers were searching for a home. Almost half said they had worked with buyers who would have missed out on the credit had it expired in November.
“No one knows what’s going to happen after April 30, but we’re saying we think the tax credit did work and we are offering this credit over the next three months to keep momentum going,” Chief Executive Officer Jim Gillespie said in an interview this week.