A mad rush is under way for first-time homebuyers to make an offer on a house, get a mortgage and close. The reason: an $8,000 federal tax credit for those buyers is about to expire -- and homebuyers are hurrying to get everything done before the Dec. 1 deadline.
The Obama administration economic team is evaluating whether to extend the deadline, White House spokesman Robert Gibbs said, according to The Associated Press. But unless the White House or other officials act to extend it, experts say offers on homes need to be made in the next three weeks to cash in on the deal.
David Armstrong is one of those people looking to get a home soon, very soon.
Armstrong, a 29-year-old nurse, is about to move from New Jersey to Jacksonville, Fla., to be with his girlfriend. He has made four trips to Florida to look and is heading back again this weekend, hoping to make an offer to buy a house.
"The credit is very important. It's an opportunity for me, especially as a first-time homebuyer, to ... market at a lower time," Armstrong said. "I'm defiantly looking not to miss out on it. For a long time the market's been so high."
A Dec. 1 deadline to qualify for the tax credit may seem far off. But lining up financing, doing home inspections and actually closing can take weeks, if not months. The deadline is just 11 weeks away, which means offers need to be made now.
If he can't get a house in time, Armstrong said he will still buy, but might be forced to get something a bit smaller. He's hoping that won't be an issue, and is moving faster with his search.
"The quicker the better, obviously. I'm doing my best to get in before the deadline," Armstrong said. "It will be a shame to miss it."
Glenn Kelman, CEO of online realty company Redfin, said that he is seeing demand up 25 to 30 percent, which is especially surprising, given that the fall is usually a slower season.
"We think that people are rushing to get homes under contract," Kelman said. "Usually, the peak of the summer season is in July. The peak of this season will be in September, and that's almost entirely an artifact of the government program."
Redfin ran a home-buying class for 100 people last week. As part of it, they asked how many were being influenced by the tax credit.
"Everybody raised their hand," Kelman said. "I used to be skeptical that people would really respond to that tax credit. No longer."
The tax credit is good for 10 percent of the home's value, up to $8,000. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. More information about the credit can be found on the IRS Web site.
Kelman said the focus of the credit has really been the medium- to low-end homes -- your traditional starter homes. People who have cash, he said, can find great deals at the higher end. It's very hard right now to get approved for jumbo mortgages, and that is hurting prices at the top of the real estate market.
Given the rush to get deals done, some in the industry are pushing Congress to extend the program. Kelman thinks such an expansion will happen, though he's "not even convinced it's the right thing to do."
"I'm worried that the government's going to go broke. Sooner or later, we need to get used to natural levels of demand for the market," he said. Even if the program is extended, we've reached a point where there will be lull in activity after November. There's been so much activity trying to beat the deadline, even if that deadline were extended, I just think there are so many people who have been running for the finish line in November."
Homeowner Tax Credit: Clock Ticking
There is no way for certain to know how many people are taking advantage of this tax credit. Those figures will roll in after Americans file their personal income tax returns on April 15. But Lawrence Yun, chief economist at the National Association of Realtors, estimates that 1.1 million first-time homebuyers had taken advantage of the credit as of Aug. 31. (Back in February, when the tax credit became law, Yun predicted 300,000 sales would occur as a result of the program.)
Even with 1.1 million sales already closed, Yun -- like others -- still sees the sales pace increasing as the summer comes to a close.
"We have seen steadily rising sales with each successive month," Yun said. "The momentum is building. We attribute that partly to people not wanting to miss out on that deadline."
The National Association of Realtors believes "it is critical" to extend the deadline, Yun said, because many people risk missing the deadline. He said they realistically have to have the home under contract in the next three to four weeks.
Chuck Whitehead, is the general manager and a partner with Coldwell Banker in Temecula, Calif., about 20 minutes from San Diego.
"In our area it's an absolutely mad rush to meet that deadline. I mean a mad rush," he said.
One of his clients made an offer on bank-owned house Friday, the first offer made. By the time it got presented to the bank Monday morning, there were 57 offers.
"There's such a frenzy going on with everybody trying to get in before this deadline. It's crazy. I feel for the kids that won't be able to get in after December 1 because the bottom line is: if they don't have this credit, they can't buy a house," Whitehead said.
One couple, a flight attendant and mechanic, are renting a converted garage to save some money for their down payment.
"They need that $8,000 tax credit to do the repairs on their house, if they get into one. Everything they are looking at is going to need some work," Whitehead said. "The sad part for them is: when this credit goes away, so does their opportunity to buy."