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Is the First-Time Homebuyer Tax Credit Working?

By Beacon Staff

The deadline for the First-Time Homebuyer Tax Credit is looming, a program that some local real estate professionals say has given the housing market in Flathead County a boost.

Area lenders say the market bump has been small, but noticeable. They reported a higher percentage of their business coming in as sales instead of refinancing, which they say means more homes are selling.

The slight increase can also be attributed to shrinking interest rates and dropping prices, but brokers are crediting the federal tax incentive as a reason more buyers are closing on properties.

“I think it’s been a factor for some people, trying to get a home purchased before it expires,” Jeff Wilson, a broker at Properties Northwest Real Estate, said. “I think that it’s a great time for people to take advantage of the market.”

Jeff Weyh at Sterling Title Services said his company has also seen an increase in home sales, a comeback after so many homeowners were focused on refinancing instead of buying after interest rates dipped below 5 percent.

The homeowner tax credit has played a part in heightened sales, Weyh said, and added that it’s welcome news after a year of stagnant real estate.

To be sure, the housing market in Flathead County is still far below previous years. Residential sales decreased by 56 percent from 2008 to July 2009, according to data from Kelley Appraisal. Owner and head appraiser Jim Kelley said he has not documented the increase in home sales reported by local banks and title companies. He’s also concerned that the end of the tax credit could mean an end to any increase.

“There’s a danger in that, because it creates kind of a boom-and-bust cycle,” Kelley said.

The homebuyer tax credit incentive absorbs some of the demand, Kelley said, leading to a temporary purchasing trend that may not exist after the program terminates. Rumors of a possible program extension are, so far, just that, and Kelley said it might help the market if the government phased the program out instead of a flat termination.

First Interstate Bank Real Estate Loan Officer Barbara Kelly said she has felt apprehension among homebuyers and, though there has been activity with the homebuyer tax credit, she has not seen a significant increase in sales. She said the uncertain economy and job market are still negatively affecting housing purchases in the Flathead.

Statewide, the effect of the tax credit is still unknown. Peggy Trenk, CEO of the Montana Association of Realtors, said the credit has certainly helped get new owners into homes, but whether it has lifted a sagging industry is yet to be seen.

Regardless of their stance on the current market, local lenders and brokers are hoping more buyers take advantage of the tax credit while they still can.

Though the tax credit technically expires on Dec. 1, local real estate lenders and brokers say the actual cut-off date is closer to the beginning of November because the sale must be closed and recorded by Nov. 30 to qualify.

With all the factors that go into buying a home, Glacier Bank Vice President Mike Smith said waiting until the last minute could end in disappointment for the buyer. Delays in the process might push the closing date into December, eliminating eligibility for the tax credit.

“Do it right now,” Smith said. “The reality is, closing times are running four to six weeks. They need to have some time.”

The program, implemented on Jan. 1 by the federal government, offers first time homebuyers a tax credit of 10 percent of the home’s purchase price, up to $8,000.

It was established to create incentives for potential homebuyers in the recessional market, and also to be a spark for the housing construction market.

First-time buyers must not have been homeowners in the past three years, including spouses. To get the full tax credit, a buyer’s income cannot exceed $75,000 for an individual or $150,000 for married taxpayers. If a buyer’s income does exceed those levels, the tax credit phases down accordingly.

Even if a potential buyer does qualify, Smith advised taking a hard look at financial stability because the tax credit is not taken into account when a bank considers lending. He said potential first-time buyers need to ask themselves whether or not they would be buying this home if this credit did not apply.

However, a large tax credit could work to the benefit of many first-time buyers.

“If you think about it, you could buy a house, close on it in October and November, turn around and file your tax return in January or February and get that money back and pay off a car loan, invest it, or make improvements to the house,” Smith said. “You can really make improvements to your financial situation by using it.”