Ashley Broom has been looking at houses since graduating from LSU almost two years ago, but she couldn’t find anything she could afford. That is, until she heard about a tax credit that could finally make the math work.
Broom soon found a 1,270-square-foot house in Denham Springs for $94,500. She felt confident about her job, her family was supportive and paying a monthly house note made more sense to her than paying rent.
“I never thought it would be this quickly,” she says. “I thought I’d be at home another year or two years at least. ”
But at age 24, Broom owns a house.
She believes it was meant to be. She saw the house on a Tuesday and had a contract by Saturday. She boasts about owning a house before her two older brothers did at her age and also about finding a house near where she grew up.
“It’s just a nice feeling to be independent,” Broom says. “I’ve got a pretty nice yard with a little back slab so I can grill and do things.”
The sale wouldn’t have happened had it not been for the American Recovery and Reinvestment Act of 2009, a $787 billion stimulus package that authorizes a tax credit of up to $8,000 for qualified first-time homebuyers purchasing a principal residence on or after Jan. 1 and before Dec. 1.
Her dream house, although an older one, didn’t have central heat and air and required other upgrades, which could have been a deal breaker because she didn’t have the money for them. That’s where the tax credit sealed her deal.
In what easily could be described as the perfect storm of house buying, she also got a rural-development loan that requires no down payment with a 5.50% interest rate.
“I got a deal,” Broom says. “I was extremely fortunate. When it’s right, it’s right.”
The tax credit was intended to lure first-time buyers like Broom into helping jump-start the housing market and the economy. Sandy Daly, president of the Greater Baton Rouge Association of Realtors, calls the combination of credits, historic low interest rates hovering below 5% and more easily obtainable FHA and rural-development loans “the sweetest bait they’ve had.”
“It’s a win-win situation,” Daly says. “You’d have to be on another planet to not appreciate one of the best buying opportunities we’ve ever had.”
The numbers indicate that it’s working. The National Association of Realtors reports home-shopping activity increased by 5% in February, with most of the traffic apparently correlating to passage of the credit. A first-quarter survey also shows first-time buyers made up 43% of all buyers in the nation.
Daly says first-time buyers, who typically lack the usual furnishings for a house like furniture and lawnmowers, also boost the economy by shopping for these items.
“First-time buyers coming out of a rental are typically from college and they don’t have a lawnmower or a rake or garden tools and even down to not having a screwdriver, so if you think about how that puts money into the hardware, the linens and furniture,” she says. “When people say housing leads the nation out of the recession, it is so true. When you buy a home, think about all you need to go with that home.”
Still, those first-timers face challenging market conditions, including the credit crunch.
Financing remains a challenge unless buyers can get an FHA or rural-development loan. Daly says it’s extremely difficult to get a loan on condominiums, which typically have too many investor owners to meet Fannie Mae guidelines unless the buyer can also make a 20% to 25% down payment.
Mike Anderson, president of Essential Mortgage, says first-time buyers now make up 70% of his mortgage applications, which he attributes to the stimulus tax credit. Houses under contract in March also jumped 18% compared to January. The area median sale price also rose from $168,000 in January to $173,000 in March.
Plus, there are few choices for first-time buyers, who typically purchase homes that are $100,000 or less. The 2005 hurricanes drove up the cost of labor and supplies to the point that a house that sold for $115,000 before the storms now sells for at least $140,000.
In the recession, costs have come down, but not housing values, which have increased slightly despite the national downturn. Billy Ward, vice chair of the Workforce Housing Committee for the Louisiana Homebuilders Association, says his group is looking into grants and nonprofit partners to provide lower-priced housing as well as technologies that could lower construction costs.
Ward, who also is the owner of Champion Builders, says his West Palm Estates, an 85-lot subdivision in Port Allen designed to cater to first-time buyers, is holding steady. The houses, ranging from $140,000 to $180,000, are averaging two sales a month, which is higher than the average this time last year of one or two sales.
“They’re experiencing homeownership,” Ward says. “We know most people build wealth through their home.”
Tamara Fuchs Empson and her husband, Ryan, were already looking at houses because of low interest rates. But they accelerated the process after hearing about the tax credit.
The Empsons teach at Dutchtown High School, so they’ve been looking at properties in Ascension Parish. They’ve found possibilities in some of the newer developments, but they’ve been a little hesitant. A Cleveland native, Fuchs Empson heard of $175,000 houses selling for $50,000 in areas where struggling industries have cut thousands of jobs.
With that in mind, she expected to find a steal in the Capital Region. Instead, she was surprised to find new developments in Ascension Parish that were outside of the couple’s $200,000 target price. But they’ve also found builders willing to pay as much as $4,000 in closing costs and some homeowners reducing their prices.
Unlike Broom, the couple hasn’t found its dream house. But Fuchs Empson says they’re hopeful.
“It helped get us excited. If we close on a house this year, we can use the tax credit on upgrades or anything we’ll need for it,” she says. “We have started thinking if we get the tax credit what it could do to help with expected and unexpected costs with the move.”
FIRST THINGS FIRST
What the American Recovery and Reinvestment Act of 2009 means for first-time homebuyers:
• First-time buyers purchasing [date title transfers to new owner] a house between Jan. 1 and Dec. 1 can qualify for the credit
• First-time buyers [including spouse] is defined as someone who has not owned a principal residence three years prior to the purchase
• The credit is equal to 10% of a house price up to $8,000; the money can be applied to a down payment and the credit can be applied to the 2008 or 2009 tax return
• The credit amount is reduced for buyers with a modified adjusted gross income [as defined by the Internal Revenue Service] of more than $75,000 for a single buyer and $150,000 for a couple filing a joint return; the credit amount is zero for taxpayers with more than $95,000 [single] or $175,000 [married] and is reduced proportionally for taxpayers with incomes between those amounts
• Unlike the $7,500 tax credit of 2008 that was essentially an interest-free loan, the stimulus credit does not have to be repaid
• To keep the credit, a buyer must use the house as a principal resident for at least three years; certain exceptions can apply
• To file for the credit, use IRS Form 1040X; seeking tax adviser assistance is recommended to ensure the form is filed correctly
