Tax credit: It's crunch time for Twin Cities home buyers

Bethany Kelleran has a new full-time job -- house hunting. Since she and her husband, Tony, accepted an offer on their house near Lake Nokomis, the 32-year-old MBA student and mom to a 19-month-old girl is watching the online real estate listings "on an hour-by-hour basis" in the hopes that their dream home will appear by Friday. That's when the homebuyer tax credits -- introduced in 2008 to prop up the ailing housing market -- expire for good.

"It's very stressful," she said as she prepared to house hunt in Eden Prairie. "It's consumed our lives."

Sellers and real estate agents are rushing against the clock to sign purchase agreements in time for the Friday deadline to qualify for up to $8,000 in federal tax credits.

It shows in the numbers. While the housing market always heats up along with spring temperatures, pending sales were up sharply in recent weeks. Last week, for example, there were 1,278 pending sales, a number not surpassed since Aug. 5, 2005, according to the Minneapolis Area Association of Realtors.

"Everyone is trying to get in at the last minute," said Janet Piontek, an agent with Exit Lakes Realty. One of her clients just received three offers on his house. Now she has to call the agents for the rejected buyers to let them know they have less than a week to find something -- an "awful" feeling, she said.

What happens to the real estate market come Saturday remains unclear. Many economists believe home sales are just being pulled ahead and will slow dramatically in the months to come. First-time homebuyers are eligible for the full $8,000 credit, which was originally set to expire in November. With the extension, the government added a credit of $6,500 for repeat buyers.

But after the unforgiving housing market of the past three years, real estate agents such as Emily Green of Sandy Green Realty aren't complaining about the uncertainty, or the seven-day workweeks. "Like a fireman, when there's a fire, you're on the scene," said Green, who has five clients hoping to buy. "We all knew this was going to happen, so I didn't schedule anything really for the last two months. No vacations, no big plans."

Prices are stabilizing

Sellers have been rushing to get homes on the market, or reprice them in the hopes of nabbing a deal.

Year-over-year, the number of new listings has been higher each week since February. Nearly 10,000 homes were listed in March, an increase of 27 percent compared with March 2009.

Dave Taurinskas, a housing inspector, said business turned at the end of March, when buyers went into "overdrive." Before that, Taurinskas recalls other inspectors describing the market as "the land of the dead." Today, he's performing multiple inspections daily.

While the frenzy has been most apparent in the past few weeks, the tax credit has been aiding the housing market for months. Prices have begun to stabilize in many areas, including the Twin Cities.

David Blitzer of S&P said the tax credit likely helped, but he was concerned that high foreclosure activity could result in "some further dampening in home prices."

Indeed, Wells Fargo economists aren't convinced that a housing recovery is upon us, noting in a recent analysis that it's based on "a very shaky foundation of tax incentives, artificially low mortgage rates and unprecedented assistance to struggling homeowners. None of these programs are sustainable."

Until it's easier to get a mortgage, the job market improves and demand for housing eats up the supply, "the recovery in housing is likely to be longer and more arduous than many expect," the bank's economists said in their weekly commentary.

Not across the board

Coldwell Banker Burnet agent Gretchen Iwen had sellers drop the price on their tidy St. Paul two-bedroom by $15,000 to $224,900. She fashioned signs highlighting the best features of the house -- ("Spend chilly winter evenings in front of the mood setting fireplace") -- and at an open house Sunday afternoon set out a bowl of chocolates wrapped in miniature pictures of the blue bungalow.

Heightened activity isn't enveloping all homes or all sectors of the market. There is close to three years' worth of supply of houses in the $1 million or more range, compared to a five-month supply of houses selling for less than $150,000. Townhomes and new construction also continue to struggle and it tends to take longer to sell a house in the exurbs.

Post-credit, some experts suggest patient buyers will be rewarded with price cuts that will easily make up the $8,000 from Uncle Sam. Plenty of cities and counties will still offer their own home-buying incentives. And interest rates are still at historic lows, although they are expected to rise throughout the year.

The Kellerans expected to sell their Minneapolis house shortly after listing it in February. It sat, forcing them to drop the price twice, to $249,500. When it sold, their search went into overdrive. Armed with cookies and other bribes to appease their toddler, the trio visits properties in the southwest suburbs before her business school classes and during Tony's lunch break.

Describing herself as "very picky," Kelleran is discouraged by the four-bedroom houses near parks they are touring. "We're not finding anything, even stretching the price range," she said. They did put an offer in recently, but it wasn't accepted. If they don't find anything by Thursday, they are thinking about raising their offer price "because of the $6,500 credit we'll get back."

Kara McGuire • 612-673-7293