October 7, 2009

Danielle Hale, Research Economist

You have probably recently heard that NAR and other housing industry associations are working to have the first-time home buyer tax credit, currently available only to buyers who "purchase" (meaning close) on or before November 30, extended. If you are a Realtor® you may even have received a Call to Action recently so that you can share in this effort. Perhaps you've seen the credit at work among your buyers but are not sure if your experience is representative. In this commentary, we'll look at the impact of the credit on home sales.

The Numbers 

Historically, first-time home sales account for 40 percent of the sales in any given year. First-time home sales have remained around 40 percent of all home sales, but there is monthly variation in market-share.

Annual Estimates
Year	Percentage
2001	42%
2003	40%
2004	40%
2005	40%
2006	36%
2007	39%
2008	41%
Source: NAR Survey of Home Buyers and Sellers 2008

 

Preliminary data from the 2009 Home Buyer and Seller Survey¹ shows month to month variation in the share of first-time home buyer data. In the six months prior to the passage of the First-time Homebuyer Tax Credit (when the $7,500 credit was in effect), first-time buyers purchased 45.1 percent of homes sold. In the six months following passage of the tax credit, first-time buyers have purchased 51.5 percent of homes sold. Data from the Realtors® Confidence Index also show an increase of 6 percent in first-time market share.

Seasonally adjusted home sales were 4.79 million in the six months prior to the stimulus package. By contrast, they are forecast to be 4.97 million in 2009. Based on this differential NAR Research estimates that approximately 350,000 first-time buyers who would not otherwise have purchased will buy a home throughout the course of the year as a result of the tax credit, and 1.8 - 2.3 million buyers will take advantage of the tax credit². This increase is slightly greater than was anticipated when projections were made based on Census population estimates and NAR calculations when the credit was adopted in early 2009 (see February commentary). Early calculations focused on marginal buyers, buyers who were near the qualifying income limit for the purchase of a median priced home, for whom the $8,000 would make the difference between qualifying and not qualifying. There are approximately 860,000 of these renter households in the US. Additionally, more than 11 million renter households have income greater than what is needed to qualify to purchase a home, some of whom have been motivated by the credit to purchase a home. An extension of the current credit through calendar year 2010 is expected to yield an additional 350,000 sales that would otherwise not have occurred. Other groups have calculated similar impact results³.

Survey Results: What do Realtors® See?

The National Association of Realtors® Research Division conducted a survey of members in August to find out what the tax credit effects are in markets across the country. The results show that 90 percent of members worked with or represented a home buyer in the purchase of a home since February 2009. Of those, 87 percent of members reported that they worked first-time buyers. A majority of members, 51 percent, reported that at least half of their first time buyer business since February 2009 can be attributed to the FTHB tax credit. 18 percent of members had five or more transactions with first time buyers since February 2009. 62 percent of members reported most first-time buyers are aware of the tax credit. Nine in ten members have promoted the tax credit. Seventy percent of REALTORS® agreed or strongly agreed with the following statement: "The First-time Home Buyer Tax Credit has brought first-time buyers into the market who have been sitting on the fence." 58 percent of members indicated that the tax credit was effective in bringing additional sales from first-time buyers who would not otherwise have purchased a home right now. 59 percent saw an increase in first-time buyers looking to purchase a home since February 2009.

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1. The Home Buyer and Seller Survey is a robust survey of about 10,000 buyers conducted annually and released each fall at the annual REALTORS® Conference & Expo. The 2009 Release Date is November 13.
2. Multiplying the change in market share by the annual sales rate and forecast annual sales, we see an extra 357,000 to 398,000 annual first-time sales in 2009. Because the tax credit is currently legislated to apply only to the first 11 months of the year, the expected increase in sales as a result of the tax credit is 327,000 to 365,000.
3. Mark Zandi, of Moody's Economy.com estimates that 400,000 new and existing buyers have purchased as a result of the tax credit. In testimony, Tim Geithner, reported that demand was boosted by implementing the tax credit that 314,000 Americans had used as of the testimony September 10, 2009. In a news release September 17, the IRS reported that the credit had provided a benefit to more than 1.4 million taxpayers thus far. Deutsche Bank also attributes 350,000 additional sales to the credit while Campbell Group estimated that number to be 357,000.

 

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

 

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