The tax credit and Miami home buyers

November 8, 2:37 PMMiami Real Estate ExaminerAlicia Willen

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On November 6, 2009, President Barak Obama signed an extension and expansion of the Worker, Homeownership, and Business Assistance Act of 2009, enacted this past February and which includes the home buyer tax credit. Commonly referred to as the First-Time Home Buyer Tax Credit, the law provides an incentive to those purchasing a home for the first time, be it a single family home, condo, townhome or co-op, equal to 10% of the purchase price of the home, which cannot be more than $800,000.

The new legislation extends the $8,000 credit until April of 2010, and adds a new benefit, up to $6,000, for current owners purchasing a new or existing home between November 7, 2009 and April 30, 2010. The modified rules also increase the limits on the buyer's income: After December 1, 2009, up from $75,000 to $125,000 per year for a single buyer and up from $125,000 to $225,000 for married couples. Similar price and income restrictions apply to repeat buyers. In this case, the definition of a first-time homebuyer is someone who hasn't owned a home in the past three years, and a repeat buyer must have been in their current homes for at least five years.

Florida homeowners can access an additional bonus under the Florida Homebuyer Opportunity Program (FL HOP), created in 2009 and administered by the State Housing Initiatives Partnership Program. The FL HOP has $28 million available for interest-free, purchase assistance loans to homebuyers eligible for the federal First-Time Home Buyer tax credit. These loans, up to $8,000, help buyers take advantage of the federal provisions, and are expected to be paid back to the state from the buyer's federal tax refund.

The National Association of Realtors (NAR) expects the legislation to continue being successful in maintaining the increased rate of home sales generated when the rules were originally passed in February of this year. NAR economists estimate that the current provision has generated approximately $22 billion in economic activity and anticipate that some two million people will benefit from the credit this year.

Information gathered from NAR, the Realtor Association of Greater Miami and the Beaches (RAMB) and the Southeast Florida Multiple Listing Service, reveals that, in Miami, home sales jumped by 70.4% from September 2008 to September 2009, and that pending sales grew 46.2 percent from March to October of this year. These sources attribute the boost in great part to the First-Time Home Buyer Tax Credit, in addition to other positive developments, such as improved home affordability and a large inventory to choose from. Another sales driver may be the general perception that prices may have hit bottom and that this is a great opportunity to buy.

Despite these facts, several questions remain regarding the validity of these measures as stabilizers of the residential market. Some doubt that the tide of rising sales can be maintained without government intervention, while others theorize that the law will keep home prices artificially high, or that the cost of the program is greater than its expected results. One other issue of concern for commercial property investors is whether the rise in home purchases will increase vacancies in apartment buildings, depressing sales and prices of this property type. Only time will tell.