A wimpy tax credit?

Could Congress’ ambitious second round of home purchase tax credits — especially the $6,500 repeat buyer credit — turn out to be a wimp in terms of economic stimulus clout? 

With the April 30 deadline to sign home purchase contracts for both the $8,000 first-time buyer credit and the $6,500 version looming, some real estate and building experts are concerned that fewer consumers may be motivated by the credits this spring than last fall.

The $6,500 credit, in particular, appears to be generating relatively little buzz among shoppers. As Gloria Ruesch, a broker with N.P. Dodge Real Estate in Omaha, Neb., put it, “I don’t think most people have any idea about it, or just don’t understand it. No one’s talking about it.”  

Lawrence Yun, chief economist for the National Association of Realtors, confirmed that the repeat buyer credit “may not be sufficient to really move people to list their houses for sale and buy another.” Although there are no hard statistics on the issue yet, he said, for many move-up or downsizing owners “this is not a clear-cut deal.”  

Around 2 million homebuyers took advantage of the $8,000 first-time buyer tax credit last year, Yun estimates. His initial projections were that as many as 1.5 million purchases could be triggered by the availability of the $6,500 credit for repeat buyers from late 2009 through mid-2010.  

Both credits were designed by Congress and the Obama administration to stimulate new economic activity and help create jobs. The $8,000 credit is intended for people who haven’t owned a home during the past three years, sign up to buy one by April 30 and close by June 30. The current credit is a revised version of last year’s, and comes with higher qualifying income limits for purchasers, but also more extensive documentation requirements.  

The repeat buyer credit was added to last fall’s economic stimulus tax legislation and signed into law Nov. 6. It offered what some critics saw as free money — up to a $6,500 check from the federal government for simply purchasing a replacement residence that you had intended to buy anyway. To qualify, however, purchasers must have lived in and owned their house for a consecutive five of the preceding eight years, and meet income and home price criteria. 

The tight timetable, plus the relatively small amount of the credit compared with the costs of transactions, may have dampened interest in the repeat buyer credit from the start. Leslie Tyler, vice president of marketing for Zip Realty, a brokerage based in Emeryville, Calif., and active in 35 metropolitan areas around the country, said the cost-benefit equation has never been favorable for most potential users. 

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“It’s not a big motivator” for several reasons, she said in an interview. First, in high cost and moderate-cost markets alike, the prospect of receiving $6,500 from the government is not likely to convince many longtime owners to suddenly go out home shopping.  

Second, for underwater homeowners — whose loan balances exceed their home’s sales value — moving up or out may not be an option. Still others find that the sale price they are likely to receive may be discouraging — and they prefer to wait for a more propitious time to sell, when prices have bounced back more. 

The costs of fixing up a house for listing, the time required to locate a replacement — on top of the tight six-month window to complete deals set by Congress — all have tended to work against the $6,500 credit as a stimulus measure, Tyler believes.

On the other hand, brokers and builders say the $8,000 tax credit appears to be motivating growing numbers of first-time buyers to sign up by the April 30 deadline. Homebuilder Dean Mon of the DR Mon Group in Shrewsbury, N.J., said he has sold 60 houses in the $180,000 to $190,000 range in one project in recent months — and the majority of purchasers are at least partially motivated by the $8,000 credit. 

“If it weren’t for the credit,” he said, “they couldn’t even buy the home.” 

Ed Brady of Brady Homes in Bloomington, Ill., said he has seen a “significant pickup in the last 30 days” and could sell as many as 90 homes to first-time buyers who can close by the June 30 deadline.

The actual stimulus effects of the two home purchase tax credits won’t be known for months, and it’s possible that there will be a burst of activity in the coming weeks. But the anecdotal evidence — if not hard sales statistics — suggests that first-timers are finding Congress’ financial lure far more compelling than longtime owners.

Ken Harney is a real estate columnist with the Washington Post.