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Home builders predict tax credits will fuel sales boom
By Jean Murphy | Daily Herald Correspondent

Robert and Karen Clark of Algonquin are taking advantage of the stimulus incentive and are purchasing the Palm Springs model at Carillon at Cambridge Lakes in Pingree Grove.

 

Brian Hill | Staff Photo

The first-time buyer tax credit convinced Marcos and Alice Guerrero to forgo a resort wedding and instead buy a new home earlier than they planned. They chose a home inn Liberty Lakes in Wauconda.

 

Paul Michna | Staff Photographer

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Published: 2/13/2010 12:00 AM

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Since Washington has seen fit to extend its very popular first-time homebuyer credit through the spring and has even added a slightly smaller credit for move-up and move-down buyers, why not jump in and take advantage of the opportunity?

Robert and Karen Clark have been considering a move for three or four years and finally took the plunge in December, thanks to the $6,500 tax credit that the government is offering to current homeowners.

"If it weren't for the tax credit, we would most likely have waited for another year or two to buy a new home," Robert admitted.

"We had found the community and house we wanted - Carillon at Cambridge Lakes in Pingree Grove - but we didn't want to sell our current home in this low-priced market," Karen said.

The new tax credit, which is open to buyers who have lived in their current home for five of the past eight years, made the difference for the Clarks.

"We figured this tax credit would also make it easier for us to sell our current home," Robert added. "So we priced our home in Algonquin to meet the market, not chase it, and the right person came along. We sold it in only a week."

The couple expects to close on their new two-bedroom and den ranch home in late June, just in time for the tax credit deadline.

"This relatively new $6,500 tax credit for current homeowners hasn't captured people's imagination yet, like the first-time buyer credit did," said Dave Smith, vice president of sales and marketing for Cambridge Homes.

"Active adults seem to know about it, but the word hasn't been getting out well to everyone," he added.

Of course, the first-time homebuyer credit has had a much longer duration which has given it time to get traction in the market.

"That first-time buyer credit had a considerable impact on our sales," Smith admitted. "Months that normally aren't big sales months like August, September and October were great for us. It changed the dynamic."

He expects the $6,500 credit for current homeowners to have more of an impact on the market as the spring progresses. Under the rules, buyers must have a contract by April 30 and have closed on the property by June 30.

"We always have spec homes that people can choose from, but if buyers want the widest variance of choice, they need to sign a contract soon so that they will be able to close by the end of June," Smith stated.

Andrew Konovodoff, president of Town and Country Homes, agreed.

"Last year 50 percent of our buyers purchased homes using a tax credit and so far this year 35 percent of buyers have used one," Konovodoff said. "The program has been an essential tool to reduce the amount of inventory for builders, banks and the resale industry."

"We are not a spec builder," he continued, "but even we have started spec homes in anticipation of a rush this spring. Currently we have 30 homes that can close by the end of June."

Anyone interested in taking advantage of the tax credit by having a home constructed from the ground up must buy now, according to Konovodoff, so there will be time to make color selections. Spec homes may be purchased as long as they last between now and late April.

Marcos Guerrero and his wife, Alice Sun, closed on one of Town and Country's homes late last year, using the first-time homebuyer credit. In fact, they were so excited about using the credit that they abandoned plans for a fancy October wedding at a Mexican resort and purchased a home at Liberty Lakes in Wauconda instead.

"We hadn't planned to buy for another two years, but we had still scheduled ourselves to go to a home-buying seminar early last year to learn everything we could," Guerrero said. "I got the flu so Alice went alone to the seminar and she came home so excited about the tax credit that she suggested we buy a house instead of having a fancy wedding."

Soon afterward they were married at the Rolling Meadows Courthouse on their lunch hour, only telling their families weeks later.

"I am ecstatic that we spent our money on a house instead of a resort wedding," Guerrero admitted.

The tax credit as a whole (for both first-time and move-up buyers) has been key to almost every builder's sales over the last year, according to Jeff Benach, executive vice president of Lexington Homes.

"It has been a major factor in any and all turnaround activity happening in the market and we have a lot of experience working with and around it," said Benach. "In fact, we've made construction and purchase decisions based on it and its timing."

Unfortunately, Benach said, when comparing sales data, the move-up/existing homeowner tax credit has not proved as popular as the first-time buyer tax credit.

"It's still a trickle-down, or in the case of the homebuyer tax credit, a trickle-up economy," said Benach. "For second-time homeowners to take advantage of the $6,500 tax credit they need to first sell their existing home - often to a first-time buyer. So until the first-time buyer makes his/her move, the second-time buyers are in a holding pattern as they're not going to buy a new home and use the $6,500 tax credit before selling their old home. They might have taken that chance five years ago, but not in today's market conditions."

Benach said that while the market would have eventually corrected itself, the tax credits accelerated the process.

"But it is important to end the credits soon so that the market doesn't get 'drunk' on these credits," he added.

Lexington Homes also has spec homes under construction at their communities which can be finished and purchased in time to take advantage of the credits.

John Wozniak, president of J. Lawrence Homes and Smykal Homes, said that most prospective buyers at their move-up communities are aware of the $6,500 tax credit and are anxious to take advantage of it.

"While the tax credit has brought new buyers in to the market, it has also moved up the time frame of buyers who were already planning to move this year. Buyers who were planning to sell their home and move in the fall simply moved up their timetable by six months so they are out there looking now," Wozniak said.

"The credit with its timetable basically forces homebuilders to have spec homes ready to sell. We have 14 spec homes under construction across seven communities right now," he explained.

"Right now I see potential buyers putting their existing homes on the market and trying to sell them so that they are in a position to buy a new one. Until the market speaks on the worth of someone's current home, they don't know what they can afford to buy and no one wants to get stuck with two houses in this economy," Wozniak said.

Debbie Beaver, vice president of William Ryan Homes, acknowledged that the first-time homebuyer credit was a "huge help to us" last year.

"If we had had 10 more spec homes under $250,000 ready, we could have sold them," she admitted. "So this time we are gearing up to be more prepared. We have 17 spec homes currently under construction."

People need to realize that the $8,000 first-time buyer credit is still in effect and the $6,500 tax credit for existing homeowners has been added, Beaver said.

"This new credit really will help those who have homes to sell, as long as they aren't upside down on their current mortgage. But they also have to keep in mind that they have to price their current home appropriately if they want to appeal to the buyers who are out there," she added.