A recent report from Deutsche Bank confirms what I have been seeing around my offices lately, while the impact of the first time buyer tax credit is up to debate, there is no doubt that the activity spurred by the credit to date has certainly elevated the mood of my agents, and spurs hope for the future of the market.

The Deutsche Bank report concludes “While the actual impact on sales numbers may be relatively light, the impact on consumer psychology, and that second-order impact on the housing market, could be meaningful, and should serve to take a worst-case scenario off the table, at least over the next several months”.

Economists at Goldman Sachs estimate that with the expanded income limits around 70% of all current homeowners will be eligible for the tax credit and that should actually help to raise home prices over the next few months.

In September, existing owners accounted for around 60% of sales, which means that around 42% of all sales last month would have been eligible for the new credit, following Goldman’s count, in addition to the 30% of sales that went to first-time buyers.

This Week’s Real Estate Insight:

The housing market is still constrained by unemployment, foreclosures and tighter credit. Serious sellers should grab this opportunity to really make their house shine; the $800,000 cap on homes eligible for the credit will exclude only around 3% of all homes. There are buyers out there, but they need to know that they are getting maximum value.  If home sellers are serious about selling, they can take advantage of the psychological impact of the new tax credit. Research the comps in your neighborhood and properly price your house to sell. Clean, de-clutter, and stage it to the max. Make sure you that you choose a Realtor that has a good web presence and that you have quality photographs.

       Last night the Senate cleared legislation regarding the extension of the first time homebuyer credit to reach the President this week, and it is virtually certain that President Obama will sign the legislative package which contains an expansion of unemployment benefits as well as the tax changes.

 The homebuyer tax credit would be extended through April 30, 2010 and a new provision allows for move-up buyers to be eligible for a credit as well.  The $8,000 maximum first-time credit will continue and couples with income up to $225,000 will be eligible, nearly $55,000 above existing guidelines. A new $6,500 maximum credit would also be available to move-up homeowners who have lived in their current residence for five of the prior eight years.

In response to previous abuse of the tax credit, an investigation by the Treasury Department found nearly 600 children, aged four and up- had received $627,000 in tax credits. The Internal Revenue Service will have greater oversight to eliminate fraud.
The legislation also contains a provision supported by the National Association of Home Builders to help larger companies with net operating losses this year or in 2008, allowing companies to carry back losses to five years for either 2008-2009, and the income cap has been removed. Presently, Companies can carry back losses for two years, and income caps limited the credit to smaller companies, so this will be a boom for larger cash strapped builders.

This Week’s Real Estate Insight:

There was about a 12 month supply of single family homes on the market nationally when the first time homebuyer tax credit was enacted, now that’s down to about an 8 month supply.   Hopefully, the extension of the credit will help to work through the inventory to a more balanced market that will be able to sustain its own recovery.