$7,500 tax credit for first-time home buyers showing signs of kick-starting market

Residential real estate brokers are an optimistic bunch, finding plenty of room for hope even when the outlook is grim.

But lately, many of them are downright giddy,
and for good reason: Evidence is mounting that a new $7,500 government incentive for first-time homeowners
is starting to push buyers off the sidelines.

Real estate agents and builders lobbied for the tax credits, which come in the form of 15-year, interest-free
loans from the federal government for buyers who take the home plunge before July 1, 2009. Since the
credits took effect, brokers and builders have promoted them in TV, print and Internet advertisements,
on fliers and in direct mail. They’re even wearing buttons advertising the deal at open houses.

"We don’t see it as a panacea, but it’s
one more tool to help us get first-time buyers into the marketplace, which will help us rebuild the real
estate market," said Dave Caveness, senior vice president for Indianapolis-based Carpenter Realtors.

"It’s certainly a helpful tool for first-time
home buyers, without playing on poor credit or pushing lenders to make irresponsible mortgage decisions."

Carpenter has mobilized its agents in 13 Indiana
counties to inform clients about the credits–a move that’s necessary because of an "embarrassing"
lack of press coverage about the incentive, Caveness said.

The incentives could result in a tax refund for eligible individuals and families who owe less
than $7,500 in federal taxes. The credits, part of the Housing and Economic Recovery Act of 2008 signed
by President Bush in August, begin to phase out for individuals who make more than $75,000 and households
that bring in $150,000.

It’ll take two or three months before Carpenter knows whether its efforts to promote the tax credits are working, Caveness
said. Even if they prod buyers, there’s little chance anytime soon for a market that resembles the most robust years of the

Local brokers are
on target to sell 27,000 homes this year–down from the 2005 peak of 33,500. And building permits for new
homes have fallen another 28 percent this year. Builders are on track to build fewer than 3,000 homes in 2008, compared with
more than 12,000 per year at the market’s peak.

A bright point: The area’s new-home inventory has dropped to a 10-year low, easing concerns about
unsold homes clogging the market.

And there are other encouraging signs. At locally based F.C. Tucker Co., sales for one week in
August jumped 15.2 percent over the same week last year, the first weekly spike in sales in at least
a year, said Jim Litten, the firm’s president of residential real estate.

The tax credits were at least partially responsible for the rally, Litten said.

Tucker sent all of its hundreds of agents a
dossier on the new law and how it could benefit customers, citing national statistics that show as many
as 40 percent of home buyers are first-timers.

If the program can prop up the starter-home market, the momentum would provide a boost to other price
levels (since second-time buyers finally will be able to sell their first homes). While home-sale statistics
typically don’t break out how many buyers are first-timers, there is anecdotal evidence that segment
has been hit hard by the market slowdown and tightened credit.

"There is such a pent-up demand right now because people have heard so much doom and gloom,"
Litten said. "So many people have been sitting on the sidelines wondering if it’s time to get in.
This is the kind of thing–if someone is on the fence–this will get them off the fence. It’s a pretty
significant savings."

Town houses, a favorite among first-time buyers, have been selling quicker for California-based Ryland Homes, said Alan Goldsticker,
the company’s president for Indianapolis.

Goldsticker gave some of the boost to the tax credit "icing" on top of an already attractively priced market.

"It’s a true benefit and a good one–an
interest-free loan," he said. "Some people are concerned you have to pay it back–just put
it into a savings account and earn interest on it and pay back $500 a year."

Some buyers who already were planning to buy are looking at the loan as a chance to spend more
on outfitting their new homes.

Andy McKibben, 26, plans to put it toward new flooring for the house he’s buying in Fishers.

McKibben, a tax manager for a consulting firm,
was sick of renting and wanted to settle down. He already had saved a 10-percent down payment and was
ready to buy when he learned about the government incentive.

"It’s just an added benefit," he said. "If they’ll give me $7,500 interest free,
I’d be a fool not to take it."

Now, his roommate is looking at buying a home of his own.

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