First-time Homebuyers Revive Residential Sales

The residential market is showing signs of recovery and first-time homebuyers are getting much of the credit for bringing it back to life.

According to the National Association of Realtors, 47 percent of Americans who purchased homes this year were first-time homebuyers.

In Arkansas, home sales increased by 10 percent in September over the same month a year ago, according to the Arkansas Realtors Association.

In Washington County, home sales were up 35.71 percent with 209 homes sold in the month of September. In Benton County, 294 homes were sold in September, a 4.23 percent decline from the 307 homes sold in September 2008.

“A lot of homes are being sold in the first-time homebuyers price point,” ARA spokesman Ethan Nobles said. “It’s obvious to us when more homes are being sold and average prices are dropping, people are taking advantage of the tax credit.”

The tax credit for first-time homebuyers was established by the Housing and Economic Recovery Act of 2008. The initial credit was worth up to $7,500 and had to be repaid. The credit amount was increased to $8,000 in 2009 and does not have to be paid back if the taxpayer remains in the home for three years following the purchase.

Nobles said a lot of realtors have been focusing their attention on first-time homebuyers.

“That tells me there’s a large enough market segment that realtors are dedicating their time to catering to those buyers,” he said.

Tim Wang, a Realtor and owner of Exit Pro Realty in Rogers, said the tax credit has been a big motivator for homebuyers who may have been sitting on the sidelines.

“About 10 to 20 percent of our home sales were generated through the tax credit,” he said.

Todd White, senior vice president of Arvest Mortgage Co., said the bank has closed a lot of loans for first-time homebuyers, particularly in October and November as the credit’s expiration date approached.

The credit was scheduled to expire on Dec. 1 but was extended under new legislation passed on Nov. 6.  The credit will now be in effect through the end of June. Homebuyers must sign a contract before April 30 and close on the home by June 30 in order to take advantage of the credit.

“It will be interesting to see what the extension does,” White said. “There was a lot of concern that had the tax credit expired, there would be this hangover effect.

“I think we’ll see another surge now.”

Nobles agreed there was some concern among realtors about what would happen in the market when the credit expired.

“At least now there’s a few more months to get things back on track,” he said. “That was the ultimate aim of this, to get the housing market back on track.”

The new legislation also expands the tax credit program by raising income limitations for homeowners. Income limits were raised from $75,000 to $125,000 for single buyers and from $150,000 to $225,000 for married couples, a move that White said should broaden the credit’s reach.

“This will help pick up a lot more buyers,” he said.

In addition, a credit is now available for long-term homeowners buying a replacement home. Those who have owned and occupied a residence for at least five out of the past eight years can claim a $6,500 tax credit if they close on a purchase by the end of June.

White said he’s not sure what impact the new $6,500 tax credit for existing homeowners will have.

“I don’t know that it’s enough to make people run out and say ‘let’s sell our home,’ but it may be enough for the homeowner that was considering renting to say ‘Now if I buy a house, I can claim the tax credit,” he said.

Nobles said the ARA is hoping the new credit will fill a gap in the market.

“The problem across the nation is that the lower and middle price range homes are selling pretty well, but what has been lacking is people buying homes at a higher price range,” he said. “As far as people moving up into larger homes, we’re not seeing as many of them in the market as we would like.

“We’re hoping the new tax credit inspires some of them to go out and buy homes.”

The tax credit is not the only inspiration for homebuyers.

Record low mortgage rates are also adding incentive for new home purchases.

The national average 30-year home loan rate fell to 4.83 percent in the week ending Nov. 12, according to Freddie Mac. A year ago, 30-year mortgages averaged 6.04 percent. The average rate on a 15-year fixed mortgage fell to 4.32 percent, the lowest on record.

People seem to be taking advantage of the rates.

White said the mortgage side of Arvest Bank is having its best year ever.

“This year we will end up closing on approximately $2 billion in new home loans,” he said. “We’ve approximately doubled our production volume.”

White attributes Arvest’s success to the fact that the bank retains the servicing of over 98 percent of the loans they originate.

“Because of that, any time there is a drop in interest rates, customers more naturally come back to us to refinance,” he said.

The national average mortgage rate dropped to 4.81 percent in April and 4.86 percent in May. Subsequently, Arvest closed on $119.4 million in loans in May and $129.97 million in loans in June for Washington and Benton counties.

Falling home prices are also aiding sales.

According to ARA, the statewide average home price dropped 5 percent in September compared to a year ago.

The average home price from January to September in Washington County was  $162,616, a 9 percent decline from the same period in 2008 when the average price was $178,922. In Benton County, the average home price was $165,403, an 11 percent decline over 2008’s average price of $185,597.

The downward pressure on prices has improved sales, Nobles said, but lowered average home values.

“But compare that with a couple of years ago, when there were double digit declines, and it’s not an entirely bad thing,” he said. “We hope to see prices go up and we have reason to believe they will, but how that will work out in reality nobody knows,” he said. “It’s going to be a couple of unpredictable years.”