The federal first-time homebuyer’s tax credit has buoyed the lower end of the region’s real estate market in recent months. Now it’s time for people with a bit more money in their pockets to get the same deal.
With the extension of the tax credit signed by President Obama Nov. 6, real estate professionals expect that momentum will build in the market for more expensive homes. Although the cap on the first-time credit remains $8,000, the income limits for first-time buyers were raised and a new tax credit of $6,500 created for home-owners who have lived in their current residence for at least five years.
The new income limits for both kinds of credits are now $125,000 for individual buyers and $225,000 for couples. Anyone making more than those limits can claim diminishing credits.
“Washington is a city full of wealthy buyers for their age group,” said Donna Evers, president and broker of Evers & Co. Real Estate. “For that group, this is a delightful gift.”
The “step-up” credit, available for the purchase of principal homes costing $800,000 or less, is well timed. Banks only recently have resumed making available so-called jumbo loans for more the expensive properties in the middle and higher end of the market.
“We are seeing big loans in the marketplace again since the summer,” Evers said. “They weren’t there for all practical purposes because banks weren’t willing to portfolio them because of the risk.”
As a result, home sales in the upper brackets have been among the most depressed over the past year.
“People did not want to go into their depleted stock market accounts and sell to make up the difference” because of a lack of jumbo loans, Evers said.
But banks began more freely lending in recent months, even on homes where the mortgage would exceed the current $729,750 ceiling under the high-cost market purchase limit for Fannie Mae and Freddie Mac.
This has helped squeeze out much of the glut of homes for sale on the upper end of the market in Washington and the closest surrounding suburban neighborhoods in Montgomery County and Northern Virginia, Evers said. Inventory has fallen to a very low four months’ supply for the past six months, which is a strong rebound from the 7.2 months average in 2008, she said.
The improvement in the market was most clearly seen last month in Washington and Montgomery County, where sales of housing units priced between $100,000 and $5 million soared in October over the same month last year. In the District sales jumped by 40.6 percent and in Montgomery the number of properties sold was up by 38.9 percent.
Part of that increase can be attributed to the rush to beat the Nov. 30 home sale-closing deadline under the original tax credit program. Now, with the new law, the buyers’ clock has been reset to get homes under contract by April 30, 2010 and closed by June 30, 2010.
That could move up the traditional buying season as higher-income buyers rush in to take advantage of the tax credit.
“This means the typical market in January, February and March will be anything but typical,” said Realtor Tony Hain, with Long & Foster. There is a sense of urgency, he said and the usually slow winter “may look more like a typical spring market — which is usually the busiest real estate time of the year.”
Some sellers already are in the market, with their confidence bolstered by the general improvement in home sales.
“Because of the high price points in the Washington market, there were people who didn’t qualify for the tax credit who were seeing that it was safe to get back into the market, so they have gotten into the process,” Hain said.
Another wrinkle in the new law is that it allows a homebuyer to claim the $6,500 credit without selling their existing home. This would allow homeowners to benefit from the program while renting out their old residences whether they are having trouble selling or just want to keep an income-producing property — as long as they buy something new.
Prices are the last piece missing from the recovery. Even with stronger home sales and reduced inventories, the prices of homes sold in the area continue to fall in most submarkets.
Evers noted that prices even in the richest neighborhoods have lagged as a market indicator ever since demand collapsed late in 2006. Despite the shrinking activity that year, prices still increased by 10 percent and were basically flat in 2007. Last year prices fell only by 5 percent in Washington and its closest suburbs — so far this year, the average price is down by 12.5 percent.
“The market is definitely rebounding but price increases are always the last thing to happen,” said Evers, who has more than 30 years experience in local real estate.
But she took an optimistic view, based on how far and how long prices have fallen. In September 2009, prices saw a 5.6 percent decline from September 2008 but the amount of reductions continues to shrink from month to month.
“Considering we saw the low point of a 16.3 percent price decline in April 2009, it is positive news that the decline is shrinking each month,” Evers wrote in her latest market analysis. “While it may take another four to six months for prices to even out, we should continue to see the decline slow.”
