Business

Homebuyers take tax credit

About 2,400 Kentucky residents were approved to claim a $5,000 tax credit for buying a newly constructed home in the last 18 months before the break expired.

The end of the New Home Tax Credit on Saturday, combined with the end of federal housing credits, has builders looking to job growth and consumer confidence to aide the housing market in 2011.

State Rep. Tommy Thompson of Owensboro, a homebuilder who pushed for the state credit, told The Courier-Journal he sees no new help coming from Frankfort for the housing industry, given the state's expected budget problems.

"Hopefully, the economy will provide its own incentive (to buy a new house) now," Thompson said.

Kentucky ended up approving about $12 million in housing credits, less than half the $25 million lawmakers had first budgeted when the credit became available in July 2009. The credit allowed qualifiers to knock the money off their state income tax bill for buying a newly constructed home in the last year and a half.

Only two other states, California and Utah, have offered a home-buying incentive like Kentucky's, said Bob Weiss, executive vice president of the Home Builders Association of Kentucky.

Kentucky lawmakers saw the credit as a way to reduce the glut of newly constructed houses on the market so contractors could ramp up building again.

Few took advantage of the credit while the federal government was offering up to $8,000 for a first-time buyer and $6,500 for others. Buyers could not take both the state and federal deals.

Once the federal deals ended in the spring, the state credit got more use, said Cindy Lanham, spokeswoman for the Kentucky Department of Revenue.

"We were hoping it would spur some sales, and I think it did," Weiss said.

Richard Miles, president of Dogwood Homes in Louisville, said about 35 of the company's 124 sales this year qualified for the state credit.

"Obviously, there are a lot of foreclosures and repossessions in the market," he said. "It (the credit) gave everyone an incentive to buy new instead."

Critics said the tax break did little to help the housing market because most buyers would have purchased a new home anyway.

"It's an absolute waste of taxpayer money," said Russ Lohan of Market Graphics, a company that tracks new home construction in Louisville.

University of Kentucky economist Ken Troske said the credit may have pushed some buyers to act sooner than they otherwise might have, resulting in fewer buyers for the market now that the deal has ended.

The broader housing market has been struggling since the federal credits ended for the same reason, according to Troske and several real estate agents.

In the last five months, Louisville home sales have plunged more than 25 percent from year-earlier figures, according to statistics from the Greater Louisville Association of Realtors.

Chuck Kavanaugh, executive vice president of the Home Builders Association of Louisville, said the credit had a positive impact.

"It may not have created a tremendous amount of building, but it did help to reduce the inventory," he said.

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