The expiring federal tax credit for home shoppers has put some froth back in the Southland’s real estate market: People are ditching work to search for new digs, plundering savings for down payments and striking as fast as they can to sign contracts ahead of the Friday deadline.
Buyers can get a tax break of up to $8,000 for first-time purchasers and $6,500 for some current homeowners if they reach agreements by April 30 and seal their deals by June 30.
California lawmakers sweetened the package last month by passing a $10,000 credit that kicks in Saturday. Now, some buyers in the state can qualify for as much as $18,000 in federal and state tax relief if they time their purchases just right.
The dual incentives have created a mind-set reminiscent of the bubble years, particularly among first-timers, who stand to gain the most money.
“I am looking at properties almost constantly, and it is just kind of a feeding frenzy right now, which frustrates me,” said Zeenath Shareef, 30, a Venice Beach renter and finance director for a Santa Monica consulting firm who took half days off to look for a home.
“In my mind, properties are going more quickly, and in some cases for more than what they would normally sell for, because people are in such a rush to buy ahead of this deadline,” she said. “I hear people saying, friends of mine saying, ‘I have to buy, I have to buy, I have to buy.’ ”
Los Angeles shoppers opened contracts on 911 houses in March, a 32.2% increase from March 2009, according to data from the California Assn. of Realtors. While that increase was sizeable sizable, it also reflects a rebound from a period last year when the nation was gripped by the financial crisis and talk of a second Great Depression abounded.
In Santa Ana, buyers opened contracts on 190 houses in March, an 8% increase from the same month a year earlier. In San Diego, buyers opened contracts on 721 houses in March, a 7.5% increase from March 2009.
Similar data for April weren’t available yet, but real estate professionals said the incentives had added kerosene to the traditionally busy spring season and analysts expect sales and prices to rise in coming months as contracts close.
“The stimulus has worked,” said Rick Hoffman, president of Coldwell Banker Residential Brokerage in San Diego and Temecula Valley. “Buyers are confident that we have seen the bottom of the real estate market and that we are on the way back up.”
Many economists don’t share such optimism and warn that once the effects of the credits wane, sales and prices are likely to drop.
“We had a serious uptick due to the tax credit, but whatever boost that gave us is now at the end,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “So I think we will see resumed declines. The only real question is how fast.”
The federal tax credit was created in 2008 by the Bush administration as a $7,500 incentive for first-time purchasers, who were required to repay the money in a series of installments. Congress increased the amount to $8,000 in February 2009 when it passed the economic stimulus package and waived the repayment requirement. As an initial deadline for the credit loomed last November, Congress extended and expanded it to include as much as $6,500 for some current homeowners.
“The bulk of the money is going to people who were going to buy anyway,” said Roberton Williams, a senior fellow with the Tax Policy Center in Washington. “It is a short-term fix to the market that is going to be reversed to some degree sometime down the road.”
In March, California lawmakers approved a credit of as much as $10,000 for people buying a new or first home. Buyers must claim the California credit over three years.
Despite the criticism that the tax incentives are giving an artificial boost to the market, they do appear to be motivating buyers such as Keith Alvarez, 25, who works in human resources for the reality television company Bunim Murray Productions.
Last December, Alvarez and his partner, Levon Aharonyan, 24, a nurse, grew fed up with paying rent, so they cut back on meals out, worked overtime shifts and filed their 2009 taxes in January to save up for a deposit.
Factoring in the benefits of the federal tax credit, they grew confident they could become homeowners and in March began scouring the market for good deals.
Alvarez and Aharonyan were outbid on some properties and didn’t bother putting in contracts on others they thought too expensive. The deadline to qualify for the federal credit loomed.
Then, on Wednesday, they received the news that their offer of $300,000 for a short-sale property had been accepted.
The race is now on to close before the June 30 deadline, though their real estate agent, Demetra Kalivas in Woodland Hills, said she was confident her clients would qualify for the two credits worth $18,000.
Alvarez said he and Aharonyan planned to use the money to rehabilitate the four-bedroom, two-bath house on a quiet, tree-lined street in Van Nuys.
“The carpets are a mess, the tiles need to be redone, the kitchen cabinets are horrible and God knows what was in the refrigerator,” Alvarez said. “It needs some work. But what really caught my eye was the backyard. The backyard was huge.”