President Barack Obama's stimulus bill, signed into law last Tuesday, already is nudging some first-time homebuyers off the fence.

After months of indecision, Chanel and Chad Hill of Plattsmouth made an offer on a home the same day the law took effect.

If what has happened locally these past few days is an indication of the national reaction, the housing market could begin to turn around. That would be significant because, economists say, the recession started with housing and the recovery must begin there.

Local real estate agents said enactment of the stimulus bill provided direction at a key time. A post-holiday uptick in buying interest and listing activity stalled in the past three weeks as buyers and sellers awaited congressional action — and waited to see whether a proposed $15,000 tax credit for all homebuyers would make it into the final law. In the end, it was an $8,000 tax credit for first-time homebuyers.

The Hills wanted to be homeowners, and they already knew interest rates on mortgages were at historically low levels.

On Tuesday, the signing of the stimulus bill dovetailed with a $27,000 price reduction on a home the Hills had considered a month earlier.

"With all of that together, we decided to go for it," Chanel Hill said. "If we waited to buy a house next year, we miss out on $8,000, which is a lot of money."

Roy Kotz of NP Dodge Real Estate said he had seven potential buyers who were at a standstill before last week but now plan to buy immediately, or at least sometime this year.

"Just the fact that we have an answer gets things moving," said Kotz, who is the Hills' agent.

Realtor Jeff Cohn said an estimated five buyers contacted his NP Dodge team last week.

"The five were on the fence, but when they found out they didn't have to pay it back, they knew for sure they would be writing a contract," he said.

The law allows first-time homebuyers within certain income requirements to claim a tax credit equivalent to 10 percent of the purchase price, up to $8,000, on homes purchased this year between Jan. 1 and Dec. 1. Buyers don't have to repay the money if they don't sell the home within the first three years.

Furthermore, homebuyers can choose whether to claim the tax credit immediately, on their 2008 tax return, or later, on their 2009 taxes.

"That's the exciting part," said Mark Johnson, manager of CBSHome Mortgage. "You don't have to wait until 2010."

It's also a tax credit, which is more valuable than a tax deduction, he said.

The credit "is like an $8,000 gift," said Larry Melichar, president of CBSHome Real Estate. "When you take an $8,000 credit paired with low interest rates . . . plus an inventory that is well-conditioned and priced fairly, you can't get the sun, the moon and the stars to line up better."

While Melichar and others in the business had hoped for a credit for all homebuyers, a credit for first-time buyers still can create a domino effect that will help the economy.

When first-time buyers purchase houses, they free up those sellers to buy other homes, and so on. That works through the surplus of homes, bringing supply and demand into better balance, which stabilizes prices.

"We have fewer properties in the market than we had, and we're going to have more buyers," Melichar said. "That's the switch that needs to take place."

The theory is that ultimately there will be a demand for new homes to be built.

U.S. housing starts and permits fell for a seventh consecutive month in January to record lows, according to U.S. Commerce Department figures reported Wednesday.

New home construction in particular can help the economy, said Barbara J. Byrd, executive vice president of Metro Omaha Builders Association.

"It's key to the economy, because when you build a home, all of the materials come from suppliers across the nation — which puts all those people back to work," Byrd said. "All the plumbing fixtures, the appliances, the carpet, the wood — all those things keep those people working, so it creates a lot of jobs."

The tax credit is not without critics. They argue it could put more people who can't afford mortgage payments into homes.

Melichar and others, however, said the incentives that led to the current wave of mortgage defaults and foreclosures no longer are available. Those incentives included mortgages requiring no down payment, loans requiring no proof of income or creditworthiness, and loans with adjustable rates and short-term teaser rates.

"I think that lending standards, where they are today, will not really enable that bad behavior that occurred in the past," said Damon Riehl, vice president and chief originations officer at First National Bank of Omaha.

First-time buyers need enough money for a down payment, higher credit scores and stronger credit histories, but they shouldn't despair of getting a mortgage, Riehl said.

Riehl said first-time buyers with minimum financial resources have two options: FHA loans, which generally require down payments of only 3.5 percent of the purchase price and are more flexible with credit histories; or conventional loans with mortgage insurance.

Conventional loans without mortgage insurance require about 20 percent down, Riehl said, although some lenders might require as little as 5 percent for borrowers with strong credit and who meet the criteria for mortgage insurance.

Those higher standards shouldn't scare away first-time buyers from taking advantage of the tax credit, Melichar and others said.

"This program is geared to assist good, qualified people to get into a home, with some very special benefits given to them to do it now, to do it this year," Melichar said. "It doesn't change what the underwriting requirements are. It doesn't change credit scores needed. But a lot of people can take it."

The tax credit alone won't pull the country out of recession, said Riehl and others.

Low mortgage interest rates will have a greater impact, he said, because existing homeowners who refinance will have more cash each month for other purchases.

For the first time in decades, the average rate on a 30-year fixed-rate mortgage fell below 5 percent in mid-January, sparking a surge of refinances.

Rates have fluctuated since then, but according to the most recent figures from the Mortgage Bankers Association, the average interest rate for a 30-year, fixed-rate mortgage with 20 percent down was 4.99 percent. (That is with the buyer paying 1.37 points; a point is equal to 1 percent of the loan.)

Cohn, the NP Dodge agent, thinks the turnaround in the housing market could come this year.

"We think because of the stimulus, we're going to double our business in 2009."


• Contact the writer: 444-1183, christine.laue@owh.com