Homebuyer credit helps keep area housing market afloat

YAKIMA, Wash. -- Since he was a young boy, Ricardo Velasco was told by his parents that he needed to own a home.

For Velasco, a 25-year-old Toppenish resident, it was tough to find an affordable home in the right area.

But when he heard about the federal tax credit for first-time homebuyers, he decided to start looking.

Velasco and his wife, America, and their three daughters, expect to close on their first home later this month and move in just in time for the holidays.

A federal tax credit of up to $8,000 for first-time homebuyers, along with record-low interest rates, has given the local real estate industry extra business.

"It's given us a talking point to get people interested," said Rick Fairbrook, broker at John L. Scott Real Estate.

Velasco was one of those interested buyers. He ended up finding a two-bedroom, one bathroom house for $74,000.

Velasco plans to use the money he gained from the tax credit to do some remodeling on the house which include installing a new roof and installing a new heating system.

"The $8,000 did really push us to get the house," he said. "We're just thankful this house came along."

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Fairbrook and others in the local and statewide real estate industry believe an influx of first-time homebuyers, lured by the tax credit, has kept the market viable.

Existing home sales in Yakima County during the third quarter had a year-over-year increase of 1.7 percent, according to data from the Washington Center for Real Estate Research released this week. The county also showed a 12.6 percent increase from second-quarter figures.

Statewide, existing home sales increased 2.6 percent, the first year-over-year gain since the fourth quarter of 2005. That figure was up 15.6 percent from the second-quarter data.

The Washington Center for Real Estate Research, which is based at Washington State University, also did a study in late September and early October that shows about half of all home purchases statewide during the third quarter were from first-time homebuyers. About 60 percent of those purchases would not have happened without the tax credit.

"About 30 percent of the (overall) market was attributed to the (first-time buyer credit)," said Glenn Crellin, executive director for the Washington Center for Real Estate Research. "That's about the same of the overall increase in (sales) activity."

First-time homebuyers likely made up the majority of buyers in Yakima County. Nearly 72 percent of existing single-family homes purchased in the county during the third quarter cost less than $200,000, according to data from Headwaters-The Source, a Selah-based firm that provides real estate data for the county. About 30 percent of those homes were under $100,000.

There's no county-level data showing how many of those purchases were a direct result of the tax credit, but local agents believe it was a driving factor.

Mike Kokenge, of Coldwell Banker Associated Realtors, estimates that about 60 percent of the company's business was from first-time homebuyers.

And it also helped that the tax credit was happening in the summer months.

"People get more motivated to buy," he said.

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While a tax credit may attract first-time homebuyers, other buyers have remained timid, making a dent on the median home price.

The price was likely driven down because first-time homebuyers tend to be in the market for lower-priced homes.

In Yakima County, median prices dropped 1.4 percent from a year ago to $154,200, while statewide numbers dropped 7.8 percent.

According to the Washington Center for Real Estate Research, there are enough homes in the $250,000 to $500,000 price range to supply the local housing market for more than a year if no more homes were placed for sale.

For homes above $500,000, there's nearly a four-year supply.

And part of the loss in this market is reflective of a tough real estate market outside the area.

For several years, sales activity for Yakima County's higher-priced homes was partially driven by buyers from areas like Seattle or California. Those buyers could buy higher-end homes in the Yakima area because they sold a modest home for much higher prices at their previous residence.

"That has stopped," said Chris Nass of Rose & Associates. "Because of the economic climate, (out-of-town buyers) can't sell those homes for big bucks in the communities where they're coming from."

The market has also had an impact on new construction.

Building permits in Yakima County for single-family homes during the third quarter declined 62.5 percent from a year ago, according to the Washington Center for Real Estate Research.

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The real estate industry is shifting its attention to an extension to the first-time homebuyer tax credit, which was approved by Congress and signed by President Barack Obama last week.

The tax credit was slated to end in November. Under the extension, homes purchased or under a binding contract by April 30 (and completed by June 30), now qualify for the credit.

That was a relief to Velasco. By the time he closes on his new home, it will be two months since he started the home purchase process.

"We were kind of worried," he said. "It was one of the first things (our real estate agent) told us -- that it was going to take a while."

With banks taking more time to screen potential borrowers during the loan qualification process, the time it takes to complete the purchase process is longer than in past years, Crellin said.

A few years ago, a home purchase could close as quickly as 30 days, said Tom Trepanier, broker and owner at Windermere Real Estate in Yakima. These days, closing a home could take as long as 45 to 60 days.

A second tax credit is also in place to spur activity from repeat buyers, which may cause increased activity for homes in the $200,000 to $300,000 range.

Under this credit, homebuyers who have owned a home in five of the last eight years may qualify for a tax credit of up to $6,500 for homes that are under a binding contract between now and April 30. Again, home purchases under binding contract must be completed by June 30 to qualify for the credit.

"We're hopeful that this new tax credit will influence the higher price ranges," Trepanier said.

But for some existing homeowners, the repeat buyer credit might not be enough to drive them to buy a higher-priced home, especially if they already get tax breaks from paying interest on their current mortgage, said Ron Anderson, an agent with Creekside Realty.

"(The credit) is not going to be enough to make them go further into debt," he said.

And real estate agents note that other things have to change for the market to have a full recovery, such as increases in employment levels and consumer confidence.

"People have been more cautious in how they spend that money. I'm sure it extends to home buying," said Fairbrook, of John L. Scott Real Estate. "I think we're in for a long, slow improvement. We're not going to see a sudden jump in sales activity in any of the (price) ranges."

* Mai Hoang can be reached at 509-577-7685 or mhoang@yakimaherald.com.

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