Builders in other states can only watch with envy as California home buyers sprint to grab that state's $10,000 income tax credit for purchase of a new home, before the $100 million allocated for the program by the new state budget is used up. The program, drafted by California Building Industry Association and passed as part of a California Legislature budget compromise, went into effect March 1 and will expire in March, 2010, although it's unlikely to last that long because 10,000 homes closed will exhaust the funding.
The urgency to buy created by the limited supply of state tax credits is pushing fence-sitters back into the market. California's program is only for new homes and not limited to first-time buyers. But entry buyers can also claim the federal tax credit of $8,000 if they close by November 30, 2009. The California credit is paid out over three years.
"You have to close to get the credit, so the first thing to go will be the standing inventory of completed homes," says Doug Bauer, president of Newport Beach, Calif.-based William Lyon Homes. "We had a 30 percent spike in both traffic and sales at our California projects in the first two weeks of March."
Robert Rivinius, president of the California Building Industry Association, said in a press release that home builders across the state experienced a jump in sales. And Allison Barnett, a CBIA lobbyist who helped get the state tax credit into the California budget, says initial reports from builders around the state indicate the same.
Meanwhile, other states are contemplating stimulus programs. The Alabama Senate passed and sent to the state House of Representatives a bill that would take $6 million from the Alabama Capital Improvement Trust Fund to help guarantee home loans managed by the Alabama Housing Finance Authority. Home buyers would pay a 1 percent closing fee into the mortgage guarantee fund but would not have to come up with a down payment or mortgage insurance. Sponsoring State Senator Lowell Barron expects the bill to generate 7,000 home sales.
"A number of state HBAs are lobbying for state tax credits, but nothing is done yet," says Rob Dietz, a tax economist for NAHB in Washington, D.C. He notes that various state housing finance agencies are also trying to fund programs similar to that of Missouri, where the agency has a new loan program that essentially allows buyers to bring the $8,000 federal tax credit to the closing table as a down payment.
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