House hunters will get an early holiday gift from Congress. Hoping to keep the fragile housing market humming along through the winter months, Congress voted to extend and expand the home buyer tax credit. President Obama is expected to sign the bill today. The credit, which was set to expire on Nov. 30, will allow first-time home buyers with higher incomes to qualify for the $8,000 credit in this round. Existing home owners who have been in their house for at least five consecutive years also will be eligible for a $6,500 credit.
To squelch fraudulent tax credit claims, buyers will also have to attach documentation proving purchase to their tax return.
Minnesota real estate agents say the first home buyer tax credit helped to clear out inventory in the lower price ranges dominated by foreclosures. Supply in the under-$120,000 category is down 58 percent in November compared with the same period last year, according to data from the Minneapolis Area Association of Realtors. Nearly two-thirds of all 2009 sales took place in the under-$190,000 price range.
RE/MAX Home Realty agent Pete Kiron is hopeful that offering the $6,500 to existing homeowners will help whittle down inventory in the $200,000 and higher price range. "It's going to get a lot of people off the sidelines in the higher dollar amounts," he said. Interest rates averaging below 5 percent for 30-year mortgages are also coaxing buyers into the water. Experts expect rates to tick higher in 2010.
"I think people are seeing there may never be a better time than right now," Kiron said.
For Coldwell Banker Burnet agent Todd Walker's more skittish clients, the $6,500 will give them the confidence to set foot in the marketplace because "they know there's a little bit more protection against some possible soft prices that still exist in different areas of the metro and at different price points," he said.
For other move-up buyers, the credit will make it possible to sell their first home and trade up, even if they have little equity left after the housing downturn. Although Minneapolis-St. Paul area home prices have risen two months in a row, median home prices in August were still 13.7 percent below August 2008 levels according to the Standard & Poor's/Case-Shiller national home price index released last week.
Ronny Loew, a LandmarQ Lending mortgage consultant, pointed out that the $6,500 credit can be "the difference between being able to pay seller-paid closing costs or not, it's the difference between being able to pay Realtor commissions or not on a decent-sized home."