Crunch time for house hunters

Armed with a flashlight, Rick Raihle peels up the carpet in search of mold. It's a blustery Tuesday night, and it's cold inside the foreclosed home he and his wife are considering buying.

But the housing market -- at least the lower end of it -- is heating up. Of the 13 houses they had hoped to walk through, more than half had pending offers. One property had been on the market four days; five buyers were battling to own it.

The Raihles are among thousands of first-time home buyers racing to cash in on an $8,000 tax credit. In order to qualify, they must close on a home purchase by Nov. 30.

The credit, which took effect in April, has helped breathe life into at least one segment of the nation's moribund housing market. The National Association of Realtors estimates that the credit will boost home sales this year by 350,000 units, and that as many as 2 million first-time buyers will take advantage of the tax credit.

In the Twin Cities, the looming deadline is creating enormous demand for homes priced at less than $190,000, pushing overall sales in that price segment up from a year ago. Sales of pricier homes are still lower than a year ago, however, illustrating the fitful nature of the rebound in home prices and sales.

What happens when the credit expires remains to be seen.

Sales of vehicles plunged after the $4,500 federal "cash for clunkers" subsidy went away. The housing industry, fearful of a similar impact in housing, is pushing for an extension, and at least a dozen proposals to extend the program have been introduced in Congress.

But, at least for the next few weeks, real estate agents, appraisers and mortgage lenders are expecting a flurry of activity.

Home buyers "are going to have to be Johnny-on-the-spot," said Alex Stenback, a loan officer with Residential Mortgage Group in Minnetonka. "The good properties go very, very quickly. They go into multiple offers."

The Raihles have stepped up their pace from casual stops at weekend open houses to serious after-work searches. "We know we're going to buy a home," Ruth Baires Raihle said. "If we're going to do it, why not also get an $8,000 tax credit?"

The credit covers as much as 10 percent of a home's purchase price, and is available to buyers who haven't owned a home for at least three years. In Minnesota, more than 28,700 taxpayers have requested the credit by amending their federal tax returns.

Many more are expected, though, and the entire industry is lining up to push buyers through the process before the deadline, which is ill-timed: It's the day after the Thanksgiving weekend, when many business offices traditionally close Thursday through Sunday.

Karen Drill, Burnet Title's director of human resources and training, will consider hiring more people, staying open longer and shifting staff around its 19 closing locations if necessary.

Most real estate agents are advising clients to make an offer no later than Nov. 1. John MacKany, an agent with Edina Realty, is trying to not schedule closings any later than Nov. 13, so that his buyers will have wiggle room in the event of mix-ups. "We all know a lot of people are going to be gunning for the Nov. 30 deadline," MacKany said.

Folks on the financing side say that buyers who are pre-approved and find a house within the next month should have no problem securing a loan in time. Brad Kolstad, area sales manager with Wells Fargo Home Mortgage, said his office is fully prepared for the onslaught. But Tim Swierczek, president of the Minnesota Mortgage Association, is not so sanguine. "Underwriting is taking awhile, and there's already a backlog of deals in the system," he said.

Foreclosures, mortgage modifications and short sales -- in which the bank agrees to a sale for less than the amount owed on the home's existing mortgage -- in addition to stricter underwriting standards requiring more paperwork already have strained the system.

Another hitch: Federal Housing Administration loans -- popular with first-time buyers -- tend to take longer than conventional mortgages because approval standards are stricter, requiring sellers to fix peeling paint, install missing railings and address other details before a deal can be sealed. Inventory in this price range "that will pass muster for financing is getting awfully thin," Stenback said.

After the appraisal and financing comes closing. David Welshons, president of the Minnesota Land Title Association and executive vice president of DCA Title, said his members are expecting to be busy in November, but he hasn't heard concerns from closers about getting the work done.

As the deadline nears, the debate about whether to extend the credit is gearing up. Even without the incentive, low interest rates and a market that's more affordable than it has been in years makes it a good time to buy a home.

Critics argue that the program -- which will cost far less than the Wall Street bailout -- is a costly and ineffective handout to people who don't need it.

Ted Gayer, co-director of the Brookings Institution, estimates that it will cost $15 billion to spur roughly 350,000 additional home sales that wouldn't have happened without the credit. "At $43,000 per new home sale [that otherwise wouldn't have happened], this is a very expensive subsidy," he wrote in a recent essay.

Another concern: Because so many transactions have involved houses in some stage of foreclosure, there is little trickle-up in the market to benefit move-up buyers or to stimulate the home market at higher price ranges.

Both trade groups are running public-relations campaigns arguing to continue the subsidy through 2010.

MacKany said the credit is motivating people to make decisions. "It's providing a comfort zone for those people who are waiting for a bottom [in home prices] or wondering if we've reached a bottom."

Newlyweds Melissa and Shawn Rask, both 22-year-old students, had been thinking about buying a house because interest rates are low and a mortgage payment would cost about as much as a monthly rent payment. But it wasn't until Shawn found out that "the government is going to give us $8,000 that we were like, 'Hey, why not?' "

They put in two short-sale offers this summer and waited for the homeowners' banks to respond, fretting that they would miss the deadline. Not to worry: They close Nov. 2 on the $141,000 Woodbury townhouse of their dreams.

Kara McGuire • 612-673-7293

• Unlike the 2008 version of the first-time home buyer credit, this one doesn't have to be repaid.

• Even if you owe no tax, you will get the credit as a refund.

• It must be your primary home.

• You can't buy from a relative.

• New or existing homes qualify, as do condos and co-ops.

• Minnesotans may qualify for additional homeowner assistance programs even with the credit. Visit www.hocmn.org for details.