The federal tax credit for first-time and move-up homebuyers expires Friday, taking away a “crutch” that has propped up Las Vegas home sales since it was extended last year, a local housing analyst said Wednesday.
Buyer and seller must have signed a binding contract by Friday for first-time buyers to qualify for the $8,000 tax credit and move-up buyers for $6,500. Escrow must close by July 1.
“We will be sorry to see it leave,” Home Builders Research President Dennis Smith said. “The Las Vegas housing market is not back on its feet yet, so to pull the crutch away at this time will hurt.”
The federal tax credit has done what it was supposed to do, which is to increase home sales, new home permits and escrow closings, Smith said.
Home Builders Research reported 4,028 existing home sales in March, bringing the first-quarter total to 10,122 closings, a 21 percent increase from a year ago. New-home sales are not quite as strong. The first-quarter total of 1,049 is down 8.4 percent from a year ago.
Smith said he has no reason to believe housing numbers will be as “rosy” when the credit expires.
“Will it have an effect? It has to have an effect,” he said. “I envision two to three weeks of an adjustment period for marketing. Realtors and builders are going to have to adjust their marketing. They can’t use the (tax credit) deadline approach. They need to get traditional demand. I don’t know what demand will reset at.”
Las Vegas Realtor Tim Kelly Kiernan said the tax credit has had a “dramatic and positive effect” on sales.
Short-sale and foreclosure clients are “hoping and praying” their offers get accepted by Friday’s deadline, he said. Short sales, or homes sold for less than the mortgage owed, must be approved by the lender and can take several months to close escrow.
“I have one particular buyer, a military veteran, who has submitted close to 20 or so offers with no luck,” Kiernan said. “He seems to continually lose out to cash buyers, but he is optimistic and keeping a positive outlook.”
Nevada Title Co. Vice President of Escrow Eileen Bechtol said as long as a written, binding contract to purchase is in effect by midnight Friday, the purchaser has until July 1 to close escrow to qualify for the tax credit.
“It’s definitely had an impact on the number of resales and new builder sales,” she said.
March was the best month for residential escrow closings at Nevada Title in the last 18 months, Bechtol said. April is “holding strong” with the last two to three business days of any month always having the largest volume of closings to save on interest payments, she said.
Kiernan said he expects April sales to be greater than March and he’s hoping the government extends the tax credit.
“If it is not extended, I expect sales to drop and my guess is the government will bring back the tax credit after 90 days or so once they see how buyers have left the market,” he said.
Dave Lampe of Henderson Valley Realty said there wasn’t that much of a rush to buy for the tax credit. He said most of his deals have been with investors or individuals that don’t qualify for the credit because of their income and they won’t be owner-occupants.
“I don’t believe there will be another extension to the tax credit, and I don’t care,” he said. “The buyers now have cash and are buying because of the low prices. Yes, the investors are back. The door to REO (foreclosure) listings is gone. The future is in short sales.”
Lampe said a sales contract can be written today if the buyer is prequalified with their lender and puts up “earnest money,” or a portion of closing costs.
“If it’s a short sale, then it’s up to final approval from the bank,” he said. “That’s what takes so long (to close escrow).”
The only reason for a downturn in home sales after the tax credit would be lack of inventory, Steve Hawks of Re/Max Platinum said. There’s a huge shortage of homes listed below $150,000 and 90 percent of those have multiple offers, he said.
“The tax credit gets far too much credit for the increase in sales in Las Vegas,” Hawks said. “We have the lowest rates and prices in years. The expiration of the tax credit will have little effect on our market. Demand will still outpace supply, especially since the supply is being artificially held back due to mediation delays and government programs.”
Housing analyst Smith said Realtors will have to find other ways to motivate buyers without the tax credit.
“In this case, it’s going to be rising interest rates,” he said. “Most of your economists from the Fed suggest interest rates are going up, although not too much for now. So the longer you wait, the more of a hit you take on the interest rate. Even a little increase affects your monthly payment.
“The point is, if you’re looking for a home — I didn’t say investment — it’s a good time to go out and find a good deal on a house,” Smith said.
Kiernan said he’ll try to get across to potential buyers that home prices are still at historic lows. He shows them a worksheet comparing the pros and cons of owning versus renting.
“The tax benefits, pride of ownership, having your own place, not being at the mercy of a landlord or a lease … usually if the payment is close, owning in most cases makes more sense than renting,” he said.
Kiernan shows 543 single-family home listings between $100,000 and $199,000 as of April 1 and 177 listings under $99,000, compared with 2,642 and 1,342 listings, respectively, a year ago.
Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.
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