Federal tax credit deadline closes in for homebuyers

It's crunch time for potential homeowners who want to take advantage of the federal tax credit aimed at first-time buyers.

They have less than 11 weeks to find a house, make a deal and close on a home to make the Nov. 30 deadline.

Realtors say they are seeing a last-minute rush.

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"I have about 15 to 20 (deals) in the pipeline, and we're getting lots of inquiries," said Christopher Shaw, a Southfield Realtor who created My First Michigan Home, which targets buyers who could make use of the tax credit of up to $8,000.

The program defines a first-time home buyer as someone who has not owned a principal residence for three years.

The potential deals in the works match the number of homes sold by First Michigan Homes Realtors since the federal tax program began in February. Shaw is among the Realtors who say ending the tax credit could stall momentum of increased homes sales.

"It was like the 'cash for clunkers' program. It was the incentive that got many people to buy who may have stayed on the fence," Shaw said. "I hope they keep it going because the real estate market is not back to normal."

The tax credit was a major factor for Andy Kem and Katie Fontana in buying a Mies van der Rohe-designed home in Lafayette Park, on Detroit's near east side.

"It was too much to pass up," Kem said.

The tax credit, which is part of the federal stimulus package, covers up to 10 percent of the cost of a first home, or up to $8,000. The program has been fueling home sales in Michigan, Realtors contend. As of Aug. 22, more than 55,000 Michiganians had used the credit to buy homes, according to the Internal Revenue Service.

As of the end of August, the inventory of homes in Metro Detroit is at its lowest level since March 2006, according to Realcomp II Ltd., the state's largest realty multilisting service. Further, home sales are at the highest levels since 2004, according to Realcomp.

But foreclosures still dominate sales in southeast Michigan and the median sales price continues to sink. The median sales price in Metro Detroit was down by a third, to $64,900, compared to August 2008, according to Realcomp. Construction of new homes remains stagnant. Residential building permits in southeast Michigan fell for a fourth straight year in 2008 -- the sharpest decline in more than 50 years, according to the Southeast Michigan Council of Governments.

"The credit allowed us to compete with 'short sales,' which can be very complicated," said Ryan Cooley, a Realtor with O'Connor Real Estate and Development in Detroit. Like many Realtors in Metro Detroit, Cooley's sales increased due to the credit.

Homes in a "short sale" are priced below what the owner owes on the house, and the practice usually is done to avoid a foreclosure.

Cooley is among many real estate agents who say if someone wants to still take advantage of the credit, they need to act fast to meet the Nov. 30 deadline. On average, first-time buyers search for 12 weeks for a home, and the National Association of Realtors says a closing can take up to 60 days, depending on individual circumstances and local regulations.

There are some efforts in Washington to extend the program, just as "cash for clunkers" got a second life.

Two weeks ago, U.S. Sen. Debbie Stabenow, D-Lansing, signed on to a bill to extend the tax credit for six months.

The Obama administration has said it is evaluating the tax credit's impact and will make a recommendation soon on whether to extend it.

The National Association of Realtors wants to expand the tax credit to $15,000, and it wants to allow all buyers to be able to qualify.

Some don't believe the tax credit is ultimately the answer to the crippled housing market.

"At its core, it is a failure to fully address the risk of home value decline," said Craig Schmeizer, chief executive officer of Working Equity Inc., a San Francisco-based financial services firm that sells policies to protect homeowners and businesses from declining market value.

"It may create price stabilization by reducing inventory, but, ultimately there needs to be a private sector solution."

laguilar@detnews.com (313) 222-2760