By Adrian Sainz
AP Real Estate Writer
It sounded like a great idea three months ago: Hand homeowners a $6,500 tax credit to find a new place to live, giving a thrust of energy to the housing market’s recovery.
So far, people are staying put.
In November, the federal government extended a tax credit of up to $8,000 for people who hadn’t owned a home for three years. This credit had helped boost home sales last summer and fall. Seeking to build on that momentum, the government added a new credit of up to $6,500 for current homeowners, hoping it would transform them into house-hunters this winter and spring.
But real estate agents around the country say the credit is doing little to elevate sales.
The unemployment rate is still near 10 percent and consumer confidence is falling. Home prices have stabilized in some markets, but are still a third below their 2006 peak. Droves of people who want to sell are stuck because their home is worth less than they paid for it.
“No one is saying, ‘I need to buy something before it expires,'” said Tim Surratt, an agent with Greenwood King Properties in Houston.
The tax credit for current homeowners was intended to help stabilize prices and bolster the economy, but the housing market remains vulnerable. Sales of new and previously occupied homes dropped in January, and the Mortgage Bankers Association’s index of loan applications recently hit a 12½-year low.
Also, the percentage of current homeowners looking to buy was nearly flat from January to February, according to a poll of 1,500 real estate agents by Campbell Communications and Inside Mortgage Finance.
The Obama administration has pumped billions into the housing market, hoping it will lead the nation out of its economic doldrums. Efforts to modify loans facing foreclosure have largely failed. So, hundreds of thousands of discounted homes will hit the market this year, stressing a market desperate to balance high supply with sluggish demand.
“You’ve got a really big problem that requires big guns, and the tax credit is just not big enough,” said Roberton Williams, senior fellow at the Tax Policy Center in Washington.
Agents said they believe the credit’s true test will come in the spring, the busiest homebuying season. Concerns about high unemployment could keep buyers on the fence.
“If you don’t have a job, you’re not going to be able to buy a new house,” said Deborah Farmer, owner of StarLight Realty in Tampa, Fla.
Another problem is that homeowners, in many cases, will need to sell their current home to afford a new one and claim the credit on tax returns. That’s a major issue for borrowers who owe more than their home is worth. Nearly one in three homeowners with a mortgage is in that situation, according to Moody’s Economy.com.
Also, $6,500 may not mean much to a buyer with enough equity to sell a property and afford another home. The savings will hardly dent down payments or moving costs. Most sellers employ real estate agents who typically receive 6 percent of the sales price.
For a home sold at the national median sales price of $164,700, the agent’s commission is $9,882. There goes the $6,500, and then some.