Race is on to qualify for credit
Las Vegas Realtor David Brownell is telling first-time homebuyers they need to be under contract within the next 30 days to take advantage of the $8,000 tax credit set to expire Dec. 1.
The tax credit, authorized by the American Recovery and Reinvestment Act of 2009, is fully refundable for taxpayers who have not owned a home in the past three years.
Most first-time buyers use Federal Housing Administration loans, which accounted for only 28 percent of home sales in August, Brownell said. It’s unfortunate that banks aren’t focused on this group with time running out on the tax credit, he said.
"Many first-time buyers are scrambling to get an offer accepted," Brownell said. "You have all these first-time homebuyers out there and if they don’t get a home before Nov. 30, what if they say, ‘I’ll just keep renting.’? This is getting first-time homebuyers off the fence."
To claim the refund, the close of escrow and transfer of title to the new homeowner must be recorded no later than Nov. 30. A typical home sale transaction takes about 30 to 45 days to complete.
"It takes a little longer than it used to," said Sue Naumann, president of Greater Las Vegas Association of Realtors. "I’m working with three or four groups looking to get the tax credit. Since housing is affordable now, we’re working diligently to find a home to take advantage of this."
Brownell of Keller Williams Realty wants to see banks follow the tack of Fannie Mae with foreclosed homes. That is, for the first 15 days of the listing, they take offers only from owner-occupants, or people who will be making the home their primary residence. Investors can come to the table with cash offers after that, he said.
In August, 42 percent of escrow closings were cash transactions, 23 percent were conventional loans and 5 percent were Veterans Affairs loans, Brownell reported. Also, 80 percent of the closing prices were less than $200,000 and 12 percent were between $200,000 and $300,000.
Short sales, or homes sold for less than the mortgage owed, represented 12 percent of all resale closings in August, reported Applied Analysis, a Las Vegas-based business advisory firm. That’s up from 8.8 percent a year ago.
Although short sales in Las Vegas are not significant in absolute numbers (545 in the past month), they represent the largest share in recent history. Also, nearly 7,800 short-sale units are under contract, either contingent or pending lending approval, but have yet to close.
"Short sales aren’t even a consideration in this unless they already have approval," Naumann said. "They take 60 to 90 days or more for approval and then you have to work through the normal escrow."
Buyers are better off making an offer on a bank-owned home or with an individual seller who’s capable of making a timely decision and getting it into escrow, she said.
Not all short-sale contracts will obtain lender approval, so financial institutions clearly play a significant role in the number of transactions, Applied Analysis principal Jeremy Aguero said.
With median existing home prices in Las Vegas less than $135,000, an $8,000 tax credit is a huge consideration for individual buyers, he said.
"A lot of those buyers may fail to qualify or may not have the incentive to close once that expires," Aguero said. "If you look at the ramping up of existing sales, it’s a very close correlation with the government program. Of course, it has to go away sometime. It can’t last forever."
Naumann said the Realtors association has lobbied Sens. Harry Reid, D-Nev., and John Ensign, R-Nev., and U.S. Rep. Shelley Berkley, D-Nev., and they all suggested they’re pushing for an extension of the tax credit, though nothing has come of it yet and there’s no guarantee anything ever will.
National Association of Realtors lobbyist Jerry Giovaniello said there was at least a 50-50 chance of getting Congress to extend the tax credit past Dec. 1 when he visited Las Vegas in July. He’s also pushing to raise the tax credit to $15,000 and expand it to all homebuyers, though that will take a lot more work, Giovaniello said.
"We are working hard on extending the tax credit," Giovaniello told the Review-Journal recently from Washington, D.C. "Many people in the pipeline might not get closed on the purchase of their home by Nov. 30 when it ends."
The group is urging members to send a message to Congress to extend the date. Giovaniello said there are "good signs" on Capitol Hill and that Reid has expressed interest in the issue.
Homebuyer interest and housing sales increased almost as soon as the ink was dry on the tax credit legislation. Lower prices and interest rates appeal to consumers, but it’s been the tax credit that has attracted people to open houses and to homeownership, Realtors said.
Existing-home closings in Las Vegas increased 63 percent through July to 26,038, local research firm SalesTraq reported.
Aguero said any further increase in Las Vegas home sales depends on "banks coming to play."
"Certainly, the premature expiration of those (tax) incentives will have negative effects nationwide and more so in Nevada," he said.
Another threat to homebuyers is the tenuous status of FHA financing, which will likely be the next shoe to drop, California-based real estate consultant John Burns said.
Claims against the FHA insurance fund have climbed, with roughly 7 percent of all FHA-insured loans now delinquent, and the fund is likely running dry, he said. According to a report from mortgage finance experts, FHA will not meet its minimum requirement as of its fiscal year-end.
This financial reality will come to light about the same time that other market forces run out of steam — just as the $8,000 tax credit expires and more of the stalled real estate-owned homes now held on banks’ balance sheets come to market.
Although most observers believe that Congress would support the FHA if necessary, Burns wonders whether FHA officials will be under pressure to continue tightening their lending policies, which now allow 96.5 percent loan-to-value mortgages for people with 600 FICO scores. Already, FHA has contracted its own standards to require a 10 percent down payment for those with credit scores below 500.
"The culmination of all these factors means housing could see another leg down later this year or early next year," Burns said.
Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.
