Tax break over for home sales
By Andrew Gomes
Advertiser Staff Writer
The $8,000 incentive to buy a home is over. Yesterday was the deadline to take advantage of a federal tax credit created last year to stimulate the housing market. Now the $8,000 question is whether home sales will slump.
Many industry analysts believe there won't be much, if any, correction, because the economy is on the mend, consumer confidence is building, interest rates remain good and lower home prices make purchases attractive.
"The tax credit has done its job," Lawrence Yun, chief economist for the National Association of Realtors, said last month. "It has brought additional buyers into the market, inventory levels have come down, and now most importantly home values appear to be stabilizing.
"With home values stabilizing, a revival in home buying confidence will likely help the housing market get back on its feet even as the tax credit impact disappears."
The National Association of Realtors last month said it expects sales of existing homes this year will rise 6.5 percent nationally.
On O'ahu, sales of existing homes were up 43 percent during the first three months of the year after a 9 percent decline for all of last year.
Part of the rise is attributed to the tax credit, which appears to be continuing to be an influence, with more homes going into escrow in April than in March.
However, the rate of increase may slow during the second half of this year after results of the tax credit incentive play out. That's because some economists believe such stimulus programs tend to advance sales that would have occurred later without stimulus.
Chason Ishii, president of local residential real estate brokerage firm Coldwell Banker Pacific Properties, said he expects this hangover effect will be small because the economy and consumer confidence are on the rise. He also said that most of the accelerated buying probably occurred late last year when the tax credit was initially set to expire.
Originally, the tax credit provided qualifying first-time homebuyers with a rebated of up to $8,000 for purchases last year. The program was extended through April and expanded with a credit up to $6,500 for qualifying repeat buyers. To get the credit, buyers had to sign purchase contracts by yesterday and complete sales by June 30.
So the impact of the tax credit program's absence won't be clear until June or July when sales contracts signed in May get reported.
Mike Gallagher, broker-in-charge at Abe Lee Realty, isn't worried about the cutoff of the tax credit. He said there may or may not be a lull in demand from buyers ahead without the federal stimulus. But what really mattered was the kickstart the program provided last year. "I'm glad we had it," he said, "because we were in the doldrums late last year."