California’s Housing Tax Credit Could Already Be Depleted

2009 June 22

June 22 2009 - It’s the end of an era for California’s home builders: The state’s tax credit of up to $10,000 for new-home buyers is just about - if not all - spoken for.

The credit has driven home sales in recent months, and its depletion will leave builders back where they started: Trying to sell new homes in an uncertain environment where foreclosures pose stiff competition and low appraisals threaten deals.

To jump-start the ailing housing market, the state set aside $100 million for qualified buyers on or after March 1. With some able to combine the Golden State’s bonus with a federal credit of up to $8,000 for first-time buyers, the response has been enormous. Some $94.7 million has been claimed via 9,848 applications, according to the most recent data from the state’s Franchise Tax Board.

“We’ve definitely seen an increase in traffic and demand coming in asking about the credit,” Jeffrey Mezger, KB Home’s (KBH) president and chief executive officer, said at a conference last month. “So it’s moved the needle.”

Millions of dollars of the first-come, first-served credit have been claimed each week - nearly $6.5 million between June 10 and June 17. With buyers rushing to get in last-minute applications, the next update expected this week could be the last.

With many qualified buyers having acted, “now you’re stuck in sort of a lull,” said Rob Stevenson, an analyst with Fox-Pitt Kelton. “The question ends up being: ‘Where are the buyers behind them?’”

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