by Tim Kenyon
Editor’s note: To qualify for the federal first-time homebuyers tax credit, deals must close by June 30. An incorrect date appeared in the print edition of the May 10-16 Corridor Business Journal. That has been corrected in this version.
CORRIDOR – A mix of real estate experts and bankers noticed a spark of business late in April as the federal first-time homebuyers tax credit of $8,000 ended.
Russ Nading, president of the Cedar Rapids Area Association of Realtors, said the credit helped nudge buyers.
However, procrastination is likely another reason the numbers appeared to increase as the deadline neared, said Mr. Nading, who oversees residential sales at Iowa Realty.
“It was busy (in April), especially the last week,” he said. “We had people working up to midnight on Friday putting transactions together.”
He estimated about 600 sale-pending transactions in the Cedar Rapids area were marked at the start of that week and it increased to about 800 at the end of it.
Peggy Doerge, vice president and manager of the home loan center for MidWest One Bank in Iowa City, noticed a surge in April business.
“We definitely had a lot of scurrying around in the last 30 days,” Ms. Doerge said. “It probably helped some, more in a sense of timing for people to buy maybe earlier than they planned.”
On a side note, she said 2009 remained consistent with 2008 figures even though the credit was available.
In contrast, the $6,500 move-up/repeat homebuyer tax credit didn’t get a lot of use last year and through the April 30 expiration, she said.
For that, buyers must have owned and lived in their previous home for five consecutive years out of the last eight.
That tax credit does not need to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.
Jeff Dill, president of the Iowa City Association of Realtors, said his market’s final figures won’t be known until all offers are closed by the end of June.
“In general, I certainly believe it did impact a lot of first-time homebuyers, especially, but the same impact was not noticed for move-up buyers,” Mr. Dill said.
Tim Sebetka, assistant vice president of real estate management for Collins Community Credit Union, said some confusion existed in the flurry of April home loan activity as people thought they had to close on deals by April 30. The required closing deadline is actually June 30.
University of Iowa Community Credit Union Vice President Amy Henderson said she didn’t have final statistics tallied, but thought both incentives were great opportunities to motivate borrowers who might be looking for a change.
The under-$200,000 home market seemed to get the most attention for people who took advantage of the credits, Ms. Henderson said.
Looking ahead, Mr. Nading is steadfastly positive.
“The market is going to take care of itself,” he said. “We’re going to see a slowdown in the next couple of weeks before Memorial Day, which is typical. But after that, summer will pick up really good.”
He bases that on low interest rates.
“You can get a 5 percent low interest. That’s the same as it was in 1949,” Mr. Nading said.
He noted he remembers thinking he got a good rate with 12 percent in 1981, at the height of that inflationary period.
A small change can make a sizable impact on a tight budget, he said.
“For a $100,000 house on a 30-year-fixed rate loan you’ll pay $536 monthly. If that goes up to 6 percent, you’ll pay another $64,” he said.
He forecasts the local market will improve from its fairly steady pace, in contrast to hard-hit markets on the coasts.
“I’m not doom and gloom,” he said. “I’m optimistic. I think June through September will provide a very good market in the Corridor.”
The positive prospects are for new and existing homes, Mr. Nading said.
Additionally, condos in Cedar Rapids are increasingly attractive to diverse demographics, from young couples to empty-nesters to retirees, he said.
Guaranty Bank President and CEO Robert Becker said his organization didn’t see a large increase or a drop in the start of the post-recession.
Market “perception” alone can change a buyers’ mind to hold off, he added.
“When real estate is going down or perceived headed that way, customers may hold off until it hits bottom,” he said.
The tax credits might have stirred a little quicker decision making, Mr. Becker said.
“Our (home lending) team reported a spurt of interest in trying to make loans, but people who were coming in had for the most part already decided they wanted to buy,” he said. “They did not get a feeling people would have been getting a loan for a new home solely for the purpose of the incentive, but it may have helped people pull the trigger sooner than later. Nobody likes to just give up money.”
The outcome of summer sales may reveal a greater impact from the tax credits, he said.
“The incentives may have created a smoothing of the curve of the home sales that usually happens from winter to summer,” Mr. Becker said. “Increased summer sales may happen anyway because the economy is coming up. We’ll see over time.”
Ben Wheeler, general manager of Coldwell Banker Hedges in Cedar Rapids, said his firm’s staff is fast at work on localizing the national company’s promotion of offering a credit of 3 percent (up to $8,000) when part of an accepted offer for buyers who sign a contract before July 31. There is no deadline for a closing date.
“We’re just rolling out the bonus as a way to keep the excitement going,” Mr. Wheeler said. “It’s an incentive not a credit.”
His company set a monthly record for pending sales in April, 26 percent higher than the previous mark, he said.
March wasn’t bad either, he noted, when the firm hit its third-best month.
The Cedar Rapids area also shows improvement because the average days on market dropped from 136 to 130 in the past year, Mr. Wheeler said.
In a first quarter comparison of 2010 to 2009, average days on market dropped from 111 to 104 in Iowa City, but increased from 113 to 127 in Coralville and 103 to 122 in North Liberty, according to the Iowa City MLS.