SAN JOSE, CA - When she started looking for a home last fall, Barbara Gundy considered a foreclosure, what with all the low prices for such properties. But in the end, she bought a new condominium, thanks in part to a state and federal income-tax credit that provided her with a financial cushion to help swing a large down payment.
The tax credits, which are for owner-occupied homes and together totaled $18,000, provided an incentive for Gundy to once again become a homeowner after renting for about 20 years. Although she had previously owned a home, Gundy qualified for the federal tax credit for first-time homeowners, which are defined as not owning a home during the last three years.
"That is a huge incentive to go and buy," Gundy, who was already looking for a home before the tax breaks were rolled out. "When that happened, that was the clincher. It helped me tremendously to get out of an apartment into a home,'' said Gundy, 60, who works as a controller.
In March, she closed escrow and moved into her condo, part of a KB development of townhouses and condos in San Jose. "With everything brand new, it's very lovely," Gundy said of the one-bedroom, 824-square-foot condo she purchased for just under $300,000. "I keep pinching myself."
Gundy first checked out some foreclosure properties. She had thought a new home would be out of her price range. "I had a Realtor and we looked at (a foreclosure). It just so happened, just as we were looking, at a service station across the street a huge truck came up and gunned its motor and I thought, "Gosh, no way do I want that kind of living.'"
Soon afterwards, she saw a sign advertising new homes, went to check them out and purchased her condo. Gundy made a 20 percent down payment on the property, which was financed with a 30-year-fixed-rate loan with a 4.875 percent interest rate.
The federal income tax credit, worth up to $8,000, is for first-time buyers of homes, existing or new, purchased between Jan 1. and Nov. 30, 2009.
The state tax credit is for buyers of new homes that close escrow between March 1, 2009, and Feb. 28, 2010, or until funding runs out for the $100 million program, which was included in the state budget passed earlier this year. It is not restricted to first-time buyers. The credit is equal to five percent of the new home's purchase price. (See breakout for more details about the federal and state credits.)
Funding for the state program is expected to run out by summer, given that 5,668 applications have been received to claim $54.9 million in credits as of May 6, according to state Franchise Tax Board statistics.
Legislation has been introduced to increase funding for the program from the existing $100 million cap to $300 million. Assembly Bill 765 is supported by the California Building Industry Association, an industry group representing the home building industry.
March statistics provided by the Association show that non-seasonally adjusted new-home sales increased 35 percent from February to March. Still, on a year-to-year basis, new home sales in March were down 44 percent.
Tax credits are indeed leading to more home sales, said Chris Apostolopoulos, division president for KB Home Northern California, which has new homes for sale in 12 Bay Area communities.
But it's hard to pin down how much of the gains are due to the state and federal tax credits given that low interest rates and competitive pricing also influence home-buying behavior, he said.
"The Bay Area is typically a very challenging market in terms of affordability. So with the current sales prices on homes, interest rates at historical lows, combined with state and federal tax credits, you see a lot of buyers taking advantage of that ," he said.
Source: MercuryNews.com