Tax credit and low prices draw homebuyers to market

06.23.09
By Sarah Beldo

For the second month in a row, a combination of falling home prices, low mortgage rates and a first-time buyer tax credit lured Americans to the housing market in May.

Sales of existing homes increased by 2.4 percent last month, according to data from the National Association of Realtors. There were 4.77 million single-family houses, townhomes, condominiums and co-ops re-sold during the month.

Although this figure reflects a faster pace than the previous month, it still lags behind the 4.95 million sold in May 2008.

Lawrence Yun, chief economist of the NAR, said that even though home loan rates have been edging up, buyers are finding that "housing remains very affordable."

In addition, he noted that first-time buyers "are being drawn off the sidelines" by the promise of an $8,000 tax credit that has assisted the sale of a number of homes which had been on the market for quite some time.

Since the tax credit seems to be working to help revive the housing market, there is a chance it could be expanded.

Recently, lawmakers have been pushing for the credit to be raised to $15,000 - and for it to be applied to all homebuyers, not just those purchasing a property for the first time.

Yun told USA Today such an incentive "would go a long way toward inducing trade-up buyers into the market." Most proposals also suggest extending all tax credits through 2010.

Some members of Congress would also like to hand out tax credits to homeowners who refinance. Recently, the Mortgage Bankers Association said that higher interest rates on home loans was a strong factor keeping people from seeking a better deal on their current mortgage.

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Housing remains very affordable.