The end is near — that is, tomorrow — for first-time homebuyers seeking a federal tax credit introduced by Pres. Barack Obama last winter to deal with the housing downturn.
Though the tax credit officially expires at midnight Nov. 30, many brokers have imposed an unofficial deadline of Sept. 1 for their buyers who want to take advantage of it. The reason is that it can take up to three months to finalize a sale, between contract signing and closing, and brokers want to play it safe.
But instead of rushing to buy homes before the Sept. 1 deadline passes, as is the case in other parts of the country, many New Yorkers have spent the last few days simply shrugging their shoulders.
That’s because the $8,000 credit is far too small to make much of a difference in Manhattan, where the average sales price is still above $1 million. Considering that most buyers now make a down payment of 20 percent of the purchase price, or $200,000 on a $1 million property, $8,000 is a drop in the bucket, brokers say. (The credit is equal to 10 percent of the purchase price of the home, to a maximum of $8,000 if the home is built this year.)
In addition, the credit’s income restrictions — a married couple filing a joint return can’t make more than $150,000 a year to qualify — puts it out of reach of many New Yorkers, who have larger salaries. Besides, brokers say, a $150,000 income wouldn’t come close to passing muster with most co-ops, which can require assets of four times a unit’s list price, or $4 million on a $1 million apartment.
Plus, lenders, too, often now want to see sizeable incomes before agreeing to finance big-ticket purchases, so low-income buyers who can’t qualify for mortgages would see any tax-credit gains neutralized, brokers add.
“It’s not really a factor,” said Justine Bray, a broker with Brown Harris Stevens, who’s sold 33 homes in Manhattan since the tax credit was signed into law last February. Of those, six were first-time purchases, she explained, though none qualified for the tax credit.
While the legislation, which was part of the American Recovery and Reinvestment Act of 2009, might be well-intentioned, it should be scaled appropriately, said Marc Lewis, president of Century 21 NY Metro.
“You would need to raise the credit to $20,000 or $30,000 to have an impact here,” Lewis said. “But they treat New York like everywhere else.”
Alternately, the federal government could energize New York’s housing market by raising the “conforming” loan limit — the level at which government-sponsored agencies Fannie Mae and Freddie Mac can purchase loans, effectively insuring them — from the current $729,750 to $1 million. That change would encourage lenders to open up the spigots for more mortgage financing, Lewis said.
Tailoring the tax credit, which can also be applied to new construction, to different national markets would likely create political headaches, said tax attorney Robert Ladislaw, though it could be tied to the Consumer Price Index, which already provides for regional discrepancies.
Then again, New Yorkers would enthusiastically lap up the tax credit, if the income limits were removed, said Ladislaw, who works for Solomon, Blum, Heymann & Stich.
A better stimulus — price reductions – is now in place. In fact, a friend’s one-bedroom co-op on the Upper West Side, listed for $630,000 last year, was reduced to $500,000 this summer, a 21 percent dip, Ladislaw said. That reduction finally puts it within that friend’s price range, even if his salary disqualifies him from using the tax credit to offset the unit’s cost.
“Any activity is being driven by drops in prices and not the tax credit, which is irrelevant,” Ladislaw said.
But in sections of the outer boroughs, where average housing prices can be less than half of Manhattan’s, the tax credit appears to be stimulating the housing market, like in southern Brooklyn, said Jean-Claude Ho, an agent with Fillmore Real Estate.
In Canarsie, where one- and two-family homes are the norm, 35 of 40 first-time buyers in the past seven months qualified for the tax credit, Ho explained. While some buyers were also lured in to the market by similar Federal Housing Administration and state incentives, the federal tax credit played a major part, he said.
“I’m very thankful that it’s helping first-time buyers get a piece of the American dream,” he said.
Likewise, poorer sections of the Bronx are benefiting, said Aileen Padilla, a broker with ReMax Voyage in the Pelham section. From March to late August, Padilla had 20 sales, she said, and almost every one was a first home and for those buyers, the tax credits went a comparatively long way.
Consider a $400,000 two-family in Morrisania, where buyers might have to put down $80,000, Padilla explained. In that case, the tax credit, which can be applied to closing costs as long as the home loans are approved by the Federal Housing Administration, would defray the cost by 10 percent. And that extra savings could, say, be put toward new bathrooms and a kitchen.
“The Bronx is booming because of it. My phones are off the hook,” she said, adding that she expects a surge in business in the next few days as a last wave of buyers tries to take advantage of the tax credit.
Similarly, outside of New York, the credit seems to be having its intended effect, said the National Association of Realtors, which predicts that 1.8 million buyers will have taken advantage of it by November.
Indeed, the trade group is now lobbying lawmakers to extend the tax credit into 2010 while opening it up to all types of buyers, said NAR spokesperson Walter Molony, because “it’s a fragile recovery, and every time we see something improve, something comes along to muck it up.”