First-time buyers, lower prices, tax credits help drive market

PEORIA — First-time home buyers are driving a resurgence in the real estate market.
There are several reasons for the trend, real estate experts say, including falling prices, continued low interest rates and now, federal tax credits.

Nationally, average prices of existing single-family homes are down nearly 24 percent since their July 2006 peak, according to Cyberhomes.com, a subsidiary of Fidelity National Financial Inc., based in Jacksonville, Fla.

While interest rates have risen above the historic lows recorded earlier this year, they remain low. And now the U.S. government is offering first-time buyers an $8,000 tax credit to further sweeten the deal.

"A lot of first-time home buyers are taking advantage of the tax credit," said Pat McCarthy, president of the Peoria Area Association of Realtors.

"The Realtors I talk to say that buyers are back out again. Of course, you need to have good credit. It should have been that way in the first place," he said.

The nation's massive credit crunch last year, which triggered a global economic downturn, introduced toxic assets to the housing vocabulary, a reference to home loans gone bad.

Although foreclosures have become commonplace across the country, especially in states like Nevada, California and Florida, there are signs the housing market is starting to turn around. "First-time home buyers are leading the way," said McCarthy.

Home sales in the Peoria area rose from 317 in April to 391 in May, according to PAAR statistics.

One of those taking advantage of the tax credit was Valerie Crain, who recently bought a home for $59,900 in Peoria. "I've been looking on and off for a couple of years," she said.

In addition to the tax credit, Crain said she received a grant through an assistance program of the city of Peoria.

"These programs are definitely encouraging some of us who don't have a lot of money to buy a house," she said.

The tax credit is motivating buyers such as Bernice Peters to make a move. "The tax credit was one reason I decided to buy. I was going to wait another year," said Peters, who just purchased a $130,000 home in East Peoria after living in a rented duplex in Morton.

"(The tax credit) is a pretty good incentive, and I qualify since I haven't owned a home in over three years," she said.

The one thing you can't do with the tax credit yet is use it as a down payment, said McCarthy, who attended a National Association of Realtors conference in Washington, D.C., where that possibility was discussed in May.

"Banks are trying to allow it be done as a bridge loan. It's still a work in progress. For a Federal Housing Administration loan, you need to have 3.5 percent (of the purchase price) down," he said.

"We were a little disappointed it can't be used as a straight down payment," he said.

Some 'don'ts' to heed

Here are five mistakes first-time home buyers don't want to make, according to Cyberhomes.com.

1. Don't think that "long term" is a couple of years.
Buying a home, especially now, requires long-term planning - not just with finances, but with your career and your personal life. A house isn't a bargain if you can't recoup your investment. The more time you can spend in the home the better the deal.

2. Don't settle for a home with more wrongs than rights.
Spend some time figuring out how much home you can afford, and browse online listings to familiarize yourself with the market. Prioritize your needs and wants and give yourself time to look around.

3. Don't make finding an agent an afterthought.
With so much information at your fingertips, it might seem old-fashioned to enlist the help of a real estate agent. But a good buyer's agent brings more to the table than listings; he or she can walk you through everything from the loan preapproval to the home inspection and, most importantly, is obligated to put your interests first.

4. Don't assume every home is in foreclosure.
No doubt there are deals to be had. But just because national headlines show double-digit drops in home prices and a record level of foreclosures doesn't mean that's the case for every home in every market. Nationally, fewer than 1 percent of all housing units on the market are in foreclosure, according to first-quarter data from RealtyTrac.

5. Don't forget about all the other costs of owning a home.
Some of the other costs that come with owning a home aren't optional - closing costs, maintenance and utilities. Others - new furniture and gardening tools, to name a few - can add thousands of dollars to the price tag if you're not careful.

Article by Steve Tarter of the Journal Star

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