First-time homebuyer tax credit set to end Nov. 30

Rosie Hadley prepares dinner in their new home in DeKalb, Ill., on Friday Oct. 2, 2009. (Beck Diefenbach – bdiefenbach@daily-chronicle.com)

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DeKALB – It wasn’t the $8,000 tax credit, or the no-money-down, low-interest loan.

Rather, it was the wood floors stretching wall to wall, the tucked-away storage space in every corner and the fenced-in backyard where 4-year-old Morgan can safely play.

“You could say it’s got nostalgia to it. ... It’s got potential,” Rosie Hadley, 43, said of the house built over a century ago on East Lincoln Highway. “As time goes down the road, we’re going to make it the way we want to make it, as a family.”

Rosie Hadley and her husband, John, 45, were determined to get into a house after years of revolving apartment doors. They almost immediately found “the one,” and though they continued looking, they kept going back to “the one” – the two-story, late 19th century fixer-upper.

Just two months after closing, the rebate check of $8,000 came in the mail because the Hadleys are first-time homebuyers.

“It was a nice incentive, should we qualify,” Rosie Hadley remembers thinking when the tax credit was first being pushed to be included in the American Recovery and Reinvestment Act. Though it didn’t have much impact on their decision to buy at this particular time, the money will allow them to make repairs and renovations.

However, the government incentive has had a tremendous impact on overall home sales, especially in DeKalb County, which saw home sales jump 33 percent in August over last August.

Overall, home sales in August in the Chicago metropolitan area – an area that includes nine counties in northeastern Illinois – increased by just 1.3 percent, the Illinois Association of Realtors reported.

Surrounding counties like Kendall and DuPage saw modest inclines over the same time period of 12.5 percent and 5.7 percent, respectively, and Kane County had a slight dip in sales.

The window of opportunity that the Hadleys fell into is also being realized by many others wanting to take advantage of the federal tax credit before the program ends Nov. 30.

Rorry Heide, president of the DeKalb Area Association of Realtors, said that, of the pending home sales in northern Illinois, 40 percent of people surveyed want to take advantage of the tax credit. She largely attributes the bump in August to that window closing in.

“I don’t see it as a long-term positive trend,” Heide said. “I see it as a fall push to take advantage of the tax credit.”

She expects home sales to continue to rise over the next few months, but not as high as the 33 percent in August.

The National Association of Realtors estimates that up to 2 million first-time buyers will take advantage of the tax credit this year – and that about 350,000 sales would not have happened without it.

Some real estate agents and mortgage brokers are recommending that first-time buyers close no later than the week before Thanksgiving, to avoid holiday delays. The NAR estimates that it’s taking about two months to complete a home sale in the current market, so to get the credit before the deadline passes, contracts should be signed soon; at the latest, the third week of October, Heide said.

But that credit could be extended.

Multiple bills have been drafted in Congress; some would extend the first-time homebuyer credit into next year and some want to expand it to include all homebuyers, remove income restrictions or raise the maximum amount from $8,000 to $15,000.

Opponents to the extension say it has already cost taxpayers $15 billion, but supporters say it’s necessary to continue stabilizing the housing market.

“If it doesn’t [continue], we’re going to go back to a stagnant, flat line again,” Heide said.

Realtors expect to hear more on the tax credit’s fate in November, she said. But as health care reform has moved to No. 1 on the public agenda, the housing crisis has slipped somewhat from people’s minds – and that sliding momentum may not have the impact the Realtors’ and homebuilders’ associations need to pass a new bill.

The momentum, however, is riding high for consumers.

And real estate agents are key to keeping that momentum going, Heide said.

“Why wouldn’t you buy now? There’s so many incentives out there,” she said. “People see that we have hit the bottom and are starting to push it now. The fence sitters, [agents are] holding their hand and helping them to the other side of the fence.”

Know more

Amount of credit: Lesser of 10 percent of cost of home or $8,000

Eligible property: Any single-family residence that will be used as a principal residence

Refundable: Yes. Reduces or eliminates income tax liability for the year of purchase. Any unused amount of tax credit refunded to purchaser.

Income limit: Full amount available for individuals with adjusted gross income of no more than $75,000, or $150,000 on a joint return. Phases out above those caps.

First-time eligibility: Purchaser (and spouse) may not have owned a home in previous three years.

Repayment: No repayment for purchases within eligible dates

Effective dates: Jan. 1, 2009 through Dec. 1, 2009