Driven by the Federal Housing Authority’s tax credit of $8,000 begun in February as part of President Barack Obama’s economic recovery plan, first-time homebuyers are having a major effect on the real estate market.
Across the country, first-time buyers accounted for 29 percent of transactions in June, according to a study released last week by the National Association of Realtors. The number of buyers looking at homes in June this year was nearly 12 percentage points higher than in June 2008.
“The capital area is right in line with the national average,” said Greater Capital Association of Realtors President Joe Himali. “The job market is stable. Employment is stable. It’s a strong market for the first-time buyer.”
Both national and local real estate sales got an additional boost in May when the Obama administration moved to allow consumers to access the first-time buyer tax credit to help cover part of the down payment and closing costs.
The shift, aimed at spurring the market, appears to have worked.
“My first-time homebuyer business is double that of the norm since I became an agent in 2003,” said Loudoun county agent Danilo Bogdanovic. “It’s hard to tell whether it was the [first-time buyers], prices, administration change — or a combination.”
According to a report by the Northern Virginia Association of Realtors, May home sales for 2009 in Northern Virginia — encompassing Arlington and Fairfax counties, and Alexandria City — increased by 5 percent compared with the prior year.
Home sales in June increased by 14 percent.
“It is reasonable to presume that a contributing factor to that increase is a direct result of the government’s $8,000 first-time homebuyer incentive,” said Jill Landsman, communications director for NVAR. “Another contributing factor is the return of affordability to our region, partially fueled by the foreclosure and short sale inventory.”
While the first-time buyer market is hot, homeowners looking to trade up are staying put.
“First-time buyers are the primary people looking to buy right now,” said Dotty Abt, a Long & Foster agent licensed in D.C., Maryland and Virginia. “Move-up buyers can’t sell their homes for what they want and are not entering the market.”
Sunken property values in some areas make it difficult for homes to appraise at sale prices.
“The major problems we are having right now are the appraisers,” Abt said. “Contracts that are accepted at reasonable prices are not being appraised for the contract value. Appraisers are coming in $15,000 to $35,000 lower than contract price, and other agents have had $50,000 to $60,000 below contract.”
Farther out in areas such as Loudoun County, the first-time buyer trend has taken hold, but other issues are at play.
Home prices are at 2003 levels, or even 1999 levels in some areas, and entry-level buyers are looking for bargains. Many homeowners are in a wait-and-see mode and remain on the fence. Homes in the $400,000-$500,000 range are hot and move quickly while expensive ones sit on the market.
“The further out you go,” Himali said, “the worse it gets. It’s like the rings of an onion. Within the Beltway, we are substantially better off.”
Many would-be buyers are still struggling with the first hurdle — the up-front money. Even though the federal tax credit can be used toward the down payment, there are still closing costs which average over $8,000, according to the U.S. Department of Housing and Urban Development. A recent NAR “Pulse Survey” reported that 82 percent of Americans still consider having enough money for a down payment and closing costs to be the biggest obstacle to buying a home.
Even so, the first-time homebuyer market in the D.C. area has flourished in the wake of short sales, foreclosures and reduced inventory in a down economy. Part of this is due to the U.S. government, which provides the area with stable job growth.
