Last week I wrote about the $8,000 homebuyers credit and noted that in order to take advantage of the credit—chose a home, make a successful bid, and get through escrow by the Dec. 1 deadline—that one would have to pretty much be in the market right now considering it’s taking about 45 days to get through the escrow process.
My how a difference a week makes. In just a week, I’ve begun hearing more stories about buyers frantic to take advantage of the Federal tax credit of up to $8,000 available for qualified first-time homebuyers purchasing a principal residence. The tax credit is actually equal to 10% of the home’s purchase price—up to $8,000.
Just in the last week, Jeremy Colonna, with Colonna & Co. Realty, who noted just over a week ago that he hadn’t seen too much action from his clients seeking to take advantage of the tax credit, has seen a sudden surge in buyers looking to get a home before the deadline ends. Now, he says, “everyone’s scrambling to get the tax credit.”
That’s a good thing, right? Some folks that tax credit is creating the blind buying frenzy much like what led to the housing run up in the first place. Others say it needs to be extended. I’d like to invite readers to e-mail me your opinion on the tax credit, “Yeah or Nay,” along with a few short thoughtful comments. I will publish the results, along with some of your thoughts, in a follow-up column.
Colonna’s the listing agent on home in a downtrodden section of North Long Beach. “The neighboring property is laundry mat and across the street is coin op carwash,” he notes. Colonna put it on the market recently for $146,000. “My highest offer right now is over $200,000,” he says, adding, “it’s 789 square feet.”
While I was speaking with Colonna on the phone about this on Wednesday, he stopped me mid-question and read two e-mails that had just popped up: “I just had two more offers while were on the phone.”
For comparison purposes, earlier on Wednesday Colonna had an approved short sale in the upscale community of Rossmoor, a 3,400 square foot home for $940,000. If you do the math, $940,000 divided by 3,400 square feet comes out to $276.47 per square foot. Take the highest offer on the North Long Beach home at well over $200,000 and divide that by 789 square feet, and “they’re nearly equal,” exclaimed Colonna.
His point is that $200,000-plus is too much for the home. “Dollar for dollar, I don’t think the home will appraise for what people are bidding for it,” Colonna says. But the mentality of people scrambling to try and meet the deadline for the $8,000 is “ignorant,” he says. “That $200,000-plus offer is almost 50% over list price. I think there are agents who are not appropriately advising their clients. It boggles the mind that there can be that many people who can live in that location.”
To make matters worse, the foreclosure moratorium has kept foreclosures from flooding the market—many believe there’s a backlog of foreclosures about to be released sometime in the near future. “It is artificially inflating things…when supplies go down offer prices go up, because moratorium has kept foreclosure volume low with an increased demand and a stagnant supply,” he says. “There’s a mob mentality going on; it’s alarming and it’s stupid.”
That’s why Colonna supports efforts by the National Association of Realtors and others to not only extend, but beef up, the buying tax credit. According to a report in the Washington Post: “Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking, Housing and Urban Affairs Committee and in a tight race for reelection next year, is co-sponsor of a bill with Georgia Republican Johnny Isakson that would raise the credit amount to a maximum of $15,000. Meanwhile, the Realtors and the builders are pushing not only for extension of the credit, but for broadening it to cover all home purchases in 2010.”
Jeannie Davies, an agent with Keller Williams Realty in Los Alamitos, has clients seeking to take advantage of the tax break, and she’s heard from many others looking for the break as well. “There definitely has been a change in the last, I would say, six weeks or so, in that we are seeing multiple offers,” she says. “We are also running into the same buyers, crossing paths with them repeatedly, who are as desperate as our clients are to take advantage of the credit.”
Davies says extending the credit would be good for the market, and it would ease the pressure that homebuyers, agents and mortgage brokers are likely to feel as the deadline nears. “I think extending it is a great idea—everybody trying to squeeze in before deadline is becoming a real challenge. Realistically you need to be ready to go by the second week of November to have a prayer of getting it closed if you hit a glitch.”
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