Tax Credit Not Jolting market
Information for Buyers

Homebuyer credit not jolting housing market

Unemployment likely part of reason people not taking advantage of savings

The Associated Press

updated 6:45 a.m. CT, Mon., March. 1, 2010

In November, the federal government extended a tax credit of up to $8,000 for people who hadn't owned a home for three years. This credit had helped boost home sales last summer and fall. Seeking to build on that momentum, the government added a new credit of up to $6,500 for current homeowners, hoping it would transform them into house-hunters this winter and spring.

The unemployment rate is still near 10 percent and consumer confidence is falling. Home prices have stabilized in some markets, but are still a third below their 2006 peak.

The tax credit for current homeowners was intended to help stabilize prices and bolster the economy. Sales of both new and previously occupied homes dropped in January, and the Mortgage Bankers Association's index of loan applications recently hit a 12½-year low.

The Obama administration has pumped billions into the housing market, hoping it will lead the nation out of its economic doldrums. Efforts to modify loans facing foreclosure have largely failed. So, hundreds of thousands of homes will hit the market this year.

Economists argue that a tax credit is rarely the sole motivation for a home purchase. Many believe tax credits just accelerate sales that would have happened anyway, leading to a drop off once that demand is exhausted.

And, bad weather in much of the country this winter has stymied home buying.

So far, the credit "is hardly registering on the economic Richter scale," said Patrick Newport, an economist with IHS Global Insight.

Real estate agents hope that the tax credit will lure more buyers as its approaches its April deadline. Both tax breaks are expected to create an estimated 600,000 additional home sales this year, the Realtors group said. The group hasn't broken down an estimate for first-time buyers and existing homeowners.

The Realtors group said the true stimulus effect of both tax credits, and the estimated sales they could create this year, will be on local economies.

To qualify for the $6,500 credit, buyers must have owned and lived in the same home for five consecutive years out of the past eight. They must sign a contract by April 30 and close before June 30. Lawmakers can extend both tax credits, but it's not clear if they will.

The home's purchase price can't exceed $800,000, and it must be used as a main residence. The income limit for single taxpayers is $125,000; for a married couple, it's $225,000.

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