Tax credits spur some home buyers

For six months, Jon Wills has been looking to buy a home in Sonoma County, eager to take advantage of plummeting prices. But those same sinking home prices made the Petaluma roofer wary of taking the plunge.

Then the state and federal governments, eager to put a floor under home prices and jump-start the economy, offered Wills something he couldn’t refuse.

“I love free money,” said Wills, the 46-year-old owner of Able Roofing Co.

By combining three different state and federal tax credits, Wills will be able to save $22,000 on a new home outfitted with solar panels.

Builders and agents say such generous tax credits, combined with already deep discounts in the market, are succeeding in finally getting hesitant buyers like Wills off the fence and into the housing market.

“The credits were definitely one of the deciding factors,” Wills said. “I’ve been looking for about six months, and the tax breaks are what made me move forward.”

After touring the Bridge Trail subdivision in northwest Santa Rosa, Wills this week offered the builder, the Hugh Futrell Corp., $359,000 for a four-bedroom, 1,770-square-foot home complete with solar panels.

There are other factors at work. Interest rates have dropped to historic lows. Wills expects to get a rate well under 5 percent.

And aggressive price cuts by the builder are another big part of his decision. The $359,000 price is $65,000 less than it was at the beginning of the year and $147,000 lower than what similar homes were fetching when Bridge Trail opened in June 2007.

But it was the tax credits that spurred Wills to act.

The lure of low or even no tax liability gave Wills the confidence that even if he missed the bottom of the housing market by a few months, he still would be getting a good enough deal to make up for it.

The incentives stack up perfectly for Wills.

Because he is a first-time homebuyer, Wills qualifies for the $8,000 federal tax credit passed by Congress last month. The credit goes to people who haven’t owned a home in the last three years and buy one between Jan. 1 and Dec. 1, 2009. There are limits on the credit for singles who make more than $75,000 a year or couples who make more than $150,000.

On top of that, he also qualifies for the $10,000 tax credit California passed two weeks ago for buyers of new homes that never have been occupied. The provision went largely unnoticed amid the budget crisis. The credit will be given out over three years at $3,333 a year. The credits are given out on a first-come, first served basis for homes bought between March 1, 2009, and March 1, 2010. The total amount of credits will be limited to $100 million.

Finally, the home Wills is buying comes equipped with nine solar panels generating 1.9 kilowatts of electricity, scoring him an additional $4,200 in federal tax credits. These credits were increased and extended for eight years as part of the Energy Improvement and Extension Act of 2008.

The credits, the $10,000 state credit in particular, are beginning to spur interest in new homes, said John Duran, broker associate with The Duran Group at Frank Howard Allen, which is marketing the Heritage Ranch subdivision in northwest Santa Rosa.

“That’s a hell of a good incentive,” Duran said. “Anything that gives buyers a reason to come out of the cave and come back into the sunshine — that there is hope in the market — is a good thing.”

Previously, an agent might begin a conversation with a prospective homebuyer by telling them about a home’s energy efficiency, new appliances or spacious floor plan. But now it’s the tax credits driving the discussion.

“Last week, everyone that was walking in the front door we were informing them of the tax credits and very few of them were aware of it,” Duran said.

Stan Paule, marketing manager for Bridge Trail, said new home sales have suffered because lots of agents and potential buyers are convinced that bank-owned properties are where all the deals are.

But the state tax credit has generated significant interest. Paule expects to sell the last nine homes in the subdivision by the end of the quarter, he said. Foot traffic doubled last weekend to about 10 people a day, many inquiring about the credits, Paule said.

Some may wonder how a state that was just teetering on the brink of insolvency can afford a $100 million giveaway.

The California Building Association, which lobbied for the stimulus, says the tax credits are needed to spur building, which will help the job market and the economy. Every $10,000 credit will generate $16,000 in new tax revenues, the group estimates.

But that’s only if builders start building again, and that is far from certain.

Economic and credit conditions remain bleak for new construction in Sonoma County, Futrell said. The credits probably will help reduce inventory, but he doubts it will spur new building anytime soon.

“Whether reducing inventories would lead to new construction of units that would then have to be sold in a potentially hostile environment strikes me as a stretch,” he said.

If it does happen, it’s only going to happen in the under-$300,000 range, which is where virtually all the demand is, he said. Building homes people want in that price range is “extremely difficult,” he said.