April 23rd, 2010 9:11 AM by Lehel S.
New homebuyers will burn through the California's state tax credit no later than May 20, the California Association of Realtors, an industry group, said Wednesday.
Starting May 1, buyers who haven't owned a home in the previous three years and buyers of new homes will both become eligible for a $10,000 state tax credit. To fund the credit, the state allocated $100 million for each category of buyer. The legislation says that homebuyers have until Dec. 31 to claim the credit, but in an e-mail to its members on Friday, the CAR said that the money will be gone 10 to 20 days after the start date.
The CAR's deputy economist, Robert Kleinhenz, explained a simplified version of his math in an interview: $100 million of $10,000 tax credits allows for 10,000 new homebuyers. The CAR projects 64,000 sales statewide in May, a modest drop from the previous year, but still about 9.5 percent of the anticipated total sales for the year.
Using 30 years of homebuyer survey data, Kleinhenz said he knows that new homebuyers tend to get into the market when prices drop. In 2009, the CAR's survey showed that 47 percent of buyers were new to the market, and Kleinhenz said they expect half of homebuyers to be new in 2010. Half of 64,000 sales is 32,000 sales, triple the 10,000 homebuyer allocation.
There is some fuzziness in those rough numbers: Homebuyers can claim 5 percent of the value of the home up to $10,000, which means purchases for $200,000 or more qualify for the maximum credit. But Kleinhenz said his model accounts for lower claims on cheaper houses.
But he didn't account for the possibility that some homebuyers who may be delaying their April closing dates into May, to claim both the $8,000 federal credit and the credit from California, which could cause the fund to dry up even faster.
The credit will be handed out on a first-come, first-served basis. Homebuyers have two weeks after they close on a house to send their paperwork to the Franchise Tax Board.
Chris Thornberg, an economist who closely tracks the housing market, said the calculations seemed pretty reasonable.
"One hundred million dollars isn't much money," he said.
Darryl Lucien, who worked on the tax credit legislation for Assemblywoman Anna Caballero, D-Salinas, said he didn't expect everyone to have enough income to take the full tax credit, which will extend its life a little.
And Kleinhenz said it's possible that some new homebuyers have already bought their homes after many rushed to complete purchases last year, when no one knew if the federal tax credit, originally set to expire in November, would be extended.
Andrea McCarthy, a spokeswoman for Gov. Arnold Schwarzenegger, an ardent supporter of the tax credit, said if the credit is used up speedily, that's a sign of how successful it has been.
Thornberg said he would be pleased if the tax credit wrapped up quickly.
"You know what's so obnoxious about it is most of these sales would have taken place anyway," he said. "Why are we spending taxpayer money to support this market? Maybe this beast will die forever, it's a waste of money."
Call staff writer Eric Wolff at 760-740-5412.
Correction: This article has been corrected to reflect that purchasers of existing houses can only claim their tax credit after the purchase date.