Sales, but No Frenzy, From Home-Buying Tax Credit

The looming expiration of a tax credit for home buyers has spurred some consumers to hurry to ink deals, but the last-minute activity has been more muted than some brokers and builders anticipated.
By: DAWN WOTAPKA And ROBBIE WHELAN: wsj.com
Many people who wanted to act on the tax credit already have done so, said Eric Lipar, chief executive of Texas-based LGI Homes. "We're not seeing an increase in traffic," he said. "It's business as usual."

To qualify for the credits of up to $8,000, home buyers must sign purchase contracts by midnight Friday, and those purchases must be completed by June 30. Some sellers were preparing for a possible 11th-hour rush: Home builder Lennar Corp. is keeping some of its sales offices open until midnight Friday, while rival KB Home extended hours both Thursday and Friday.

And some brokers say their business has surged as the deadline neared.

"It's gone nuts," said Lew Reich, an agent at the brokerage of Keller Williams Realty in Plano, Texas. "We're seeing a very strong rush, strong sales, a lot of people are being energized by the end of the credit."

David Lee, who does maintenance work for the Mandalay Bay casino in Las Vegas, submitted a $150,000 offer on Tuesday for a three-bedroom house in Las Vegas. He hopes to get an $8,000 tax credit, but the home is a bank-owned foreclosure, and Mr. Lee is still waiting to hear from the bank about whether his offer has been accepted. "I'm kind of going crazy because it's a lot of money for me," Mr. Lee said.

If Mr. Lee doesn't get a home now, however, he figures he might be able to get one cheaper in a few months—if prices fall further.

It isn't clear how effective the credit has been. Sales of new single-family homes surged 27% in March from the prior month on a seasonally adjusted basis, the Census Bureau reported, but that estimate is based on a small sample and is frequently subject to large revisions. So far, the credit has been most effective with first-time buyers not stuck with an existing home to sell.

The end of the credit has stirred fears that the housing market, which has showed signs of stabilizing in much of the country over the past year, might face further steep price declines. Economists note that the buying incentives pulled demand forward, so buyer traffic could fall come Saturday.

Meanwhile, many of the same headwinds remain: Unemployment is high, and the foreclosure crisis continues to dump more distressed properties on the market.

Congress initially passed a $7,500 tax credit for first-time buyers two years ago, which had to be repaid over 15 years. Then, last spring, Congress extended the credit, expanded it to $8,000 and waived the repayment requirement. When that was set to expire Nov. 30, Congress extended it again and added a $6,500 tax credit for some repeat buyers.

Many buyers had rushed to meet the expected November deadline, leaving less demand in the market as the new cutoff approached. "There is no doubt the first round of the credit had a much bigger impact," said John Burns, an Irvine, Calif., home-building industry consultant.

The credit won't be extended—for now, at least. The National Association of Home Builders has said it currently isn't lobbying for another round. Some consider that a good thing because a more normal market will result.

Some forecasters expect foreclosure activity to put further pressure on prices and inflate inventories in troubled markets, but Lawrence Yun, chief economist with the NAR, said he is not worried about distressed homes.

"We know that foreclosures will remain high" he said. "We've had this shadow inventory coming on, and it is being absorbed."

The key test, he added, is whether home sales numbers for the coming fall and winter seasons will match those from last year. He predicted that job growth and the creation of new households would compensate for the expiration of the tax credit in stimulating the market.

Sellers unloaded homes at an annual rate of 5.3 million units in the third quarter of last year, up more than 11% from the previous quarter, according to the NAR.

"If this year's [autumn and winter] sales can match up with last year, when there was the credit, then we can say that the housing market is back on its feet," Mr. Yun said.