When Shane J. Bricault received a check from the federal government last month for $8,000, he let out a whoop so loud that he startled his brother. The check served as tangible proof that the federal stimulus package was having a real effect in Rhode Island.
Before moving into their North Providence home last summer, Bricault and his wife Erin spent the last four years looking at more than 30 homes and trying to find one in their price range. Then in February, Congress included an $8,000 tax credit for first-time homebuyers as part of the American Recovery and Reinvestment Act of 2009.
“It definitely was the incentive to push us toward buying a home,” said Bricault, who also received a credit from the city.
The federal credit is set to expire on Dec. 1 unless Congress approves an extension. Some groups, like the National Association of Home Builders (NAHB), are calling on Congress to keep the program in place, saying it stimulates the real estate market and creates a trickle-down effect as people move into homes and start spending in their new communities.
“The tax credit has been helping buoy demand for new homes since its passage in February, but builders are concerned about what happens after it is gone,” said NAHB Chief Economist David Crowe in a statement. “On top of the credit’s impending expiration, builders continue to grapple with a severe lack of credit for housing-production loans and inappropriately low appraisals that are tied to the use of distressed properties as comps – both of which blunted the tax credit’s positive effect. Together, these three challenges threaten to completely stifle the upward momentum we’ve seen in the first half of 2009.”
The Internal Revenue Service says that at least 4,100 Rhode Island homebuyers have taken advantage of the credit based on amended 2008 tax returns. Nearly 1.4 million Americans have utilized the credit nationwide, the IRS said.
The program is open to those who have not owned a home in the past three years and make less than $95,000, or a couple making less than $170,000 – although those at the higher income level cannot recoup the full credit. The credit is also tied to the purchase price, and equals 10 percent of the price with a maximum credit of $8,000.
The credit has particularly helped those in the low-income brackets, said Richard Godfrey, executive director of Rhode Island Housing.
“It gets down to you can afford [a home] or you can’t, so the $8,000 really helps push people to yes, you can afford it,” he said.
“Every little bit helps,” Godfrey said.
Rhode Island Housing has joined the Rhode Island Association of Realtors to lobby the state’s congressional delegation to extend the credit. Association President Paul Leys said Congress needs to lengthen the program for it to actually last a full year.
The program, established in February, was slow to impact the market for the first three months because many people did not know about it, Leys said. That knocked three months off the program right there. Plus, Leys said, it typically takes 45 to 60 days to close on a house, which essentially lops off October and November. Hence, the full effect of the program lasted only roughly six months, Leys said.
“We’re really pressing hard for an extension,” Leys said. “We’ve seen it helping the market over the last several months, but if it doesn’t continue, it’s not going to be the death knell of the market.”
Godfrey worries that without an extension, people will rush into purchasing a home simply to meet the deadline. A rushed process could potentially lead to problems down the road if new owners find title problems or physical troubles with the house itself.
For homebuyers already in the closing process, Godfrey said RI Housing employees will work the Friday and Saturday after Thanksgiving – days the office is normally closed – in an effort to close sales by Dec. 1.
Leys said the program did not simply speed up sales that would have been made anyway. Real estate agents said falling homes prices injected far more vigor into the market than the federal tax credit. The median home price for a single-family home in Rhode Island was $220,000 in August, down 6.4 percent from a year earlier, the Realtors association reported. Real estate agents say the credit created an added bonus in a buyer’s market.
“It’s kind of gotten them off the fence,” said Art Hillman, president of Bristol County Realty in Attleboro. “Interest rates are low. Prices are down and this has been a little bit added incentive for them.”
The credit is different from the program that existed before. Under that program buyers could take a $7,500 credit, but were required to repay it over 15 of years. That essentially made the program a zero-interest loan provided by the federal government rather than an outright tax credit.
Not everyone, however, is convinced. The current program is expected to cost the federal government about $6.6 billion. The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution in Washington, awarded the program a “C” when Congress first proposed it and stands by the grade today, said Roberton Williams, a senior fellow at the center.
“It hasn’t solved the fundamental problem of the market, which is we got a real problem in the mortgage side – foreclosures – and that’s going to be a continuing problem,” he said.
Williams blasted proposals to raise the credit to $15,000 as unnecessary waste that fails to dramatically change behavior. Yes, the credit brings more people into the office, Williams acknowledged, but at what cost?
In Williams’ view, many of those homebuyers would have purchased a home eventually anyway. The incentive is only closing the deal for a select few but paying out for everyone.
“You’d like something that is a little better targeted to somebody who wouldn’t do that anyway and that’s very, very hard to do,” Williams said.
Karl Martone, the incoming president of the Rhode Island Association Realtors and a RE/MAX agent, added that the credit was not making a huge difference at his office.
“I found people to be very happy to get it, but the buyers I’m working with are like, ‘Yeah, I’d really like to get it but I’m not going to rush into a house just to get it,’” Martone said.
Bricault, the first-time homebuyer, said Congress should continue the program in some form. Bricault said the credit helps far more than just him. The family is now paying property taxes to North Providence, patronizing local establishments and helping grow a community in a neighborhood where for-sale signs dot the street. Without the credit, those things might not have happened.
“I think we would have saved a little more [before buying] and probably not felt so good about the move,” Bricault said. •
