Campbell Survey Shows Tax Credit Extension for Homebuyers Likely to Encourage Mostly First-Time Purchasers

The proposed homebuyer tax credit, now pending before Congress, would extend an $8,000 tax credit for first-time homebuyers. Additionally, current homeowners would receive a $6,500 tax credit for moving to a new principal residence.

Survey results show that the average price for homes purchased by first-time homebuyers was $186,000 in the third quarter of 2009. In contrast, the average price for current homeowners buying a new principal residence was $309,000.

"On a percentage basis, the effect of the tax credit would be much smaller for current homeowners," observed Thomas Popik, research director for Campbell Surveys. "We estimate that the first-time homebuyer tax credit will result in a 10% increase in home sales from March through November of 2009. We'd expect the effect of the proposed tax credit for current homeowners to be about half as large -- from December until the tax credit expiration in the spring of next year, it might be 5% of 3 million transactions, or about 150,000 incremental home sales. Incremental sales to first-time homebuyers could be an additional 300,000, for a total of 450,000 incremental sales due to the tax credit extension."

In the third quarter of 2009, current homeowners made up 38% of the home purchase market, with first-time homebuyers accounting for another 42%. The tax credits would apply to all income-qualified homebuyers, including those who would have bought without the tax credit incentives. Using the proportions of homebuyers indicated by the third quarter survey results, Campbell Surveys estimates that the total cost of the homebuyer tax credit extension could be as large as $7 billion for current homeowners and $10 billion for first-time homebuyers, for a total of $17 billion.

The Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions involves more than 1,500 real estate agents nationwide and provides up-to-date intelligence on home sales and mortgage usage patterns.