The deadline for first-time home buyers to take advantage of the government's $8,000 tax credit appears in line for an extension. But the popular tax break has already been fueling a phenomenon that many struggling real estate markets haven't experienced in years: bidding wars. Lower-priced homes on the market in many once-beleaguered areas have seen a flood of offers, say real estate brokers from Boston to Portland, Ore. Though the original tax credit is good on homes sales completed by Nov. 30, because home deals can take months to complete, new buyers are rushing to close escrows so they don't miss out on the credit.
"It's a welcome change from the way things have been around here," says Carrie Novotny, a realtor in Edina, Minn., outside Minneapolis. She says a recent open house for a two-bedroom, Craftsman-style home listed at $213,000 drew several dozen prospective buyers and more than five serious bidders. The home eventually went into contract for $217,000, Novotny says. "It's been a bit crazy," she says. "People really want to nail down a sale to cash in on the tax break."
Victoria Caldwell, a real estate broker in Edmond, Okla., says there is a shortage of affordable homes in the area and buyers are streaming in to bid on lower-cost homes on the market. "I listed a two-family home last week and got nearly 100 potential buyers," she said. "Let me tell you, that's a heck of a lot of people in this economy." Caldwell says she eventually fielded about 20 serious offers for the home, including a few that came in well above the $207,000 asking price.
Senate leaders are finalizing plans to extend the tax break into April 2010 for first-time home buyers while also offering a new credit of up to $6,500 for other primary home purchasers. If the new agreement passes in the Senate, the House would then need to sign-off on it.
The original tax credit, part of the $787 billion economic stimulus bill, passed in February, allows first-time home buyers to reduce their federal income taxes by 10% of the price of a home, up to a maximum of $8,000. The credit is set to expire Dec. 1 if an extension is not reached.
The National Association of Realtors, along with the Mortgage Bankers Association, estimates that home sales to first-time buyers have increased by 25% in 2009 and now account for 50% of all sales. The groups say that first-time buyers are often at the lower end of the market and that the tax credit is helping to reduce the inventory of foreclosures.
Though critics have questioned whether an extension is needed, the National Association of Home Builders estimates that extending the program would create more than 347,000 jobs, generate $16.1 billion in wages and salaries, and $12.1 billion in business income.
"We have all seen how the credit has been a spur to bring home buyers into the market, and have seen the beginnings of a real recovery in the housing market," said National Association of Realtors President Charles McMillan.
McMillan cited recent home sales numbers as proof that more government help is needed. New home sales in September 2009 fell 3.6% from a month earlier, and 7.8% from September 2008.
