Many of us dream of owning a brand-new, custom-built masterpiece of a home — the kind of place you usually see featured on the Parade of Homes. Well, 2010 could be the year, and Cleveland could be the market to make that dream come true. The economy is holding steady, tax incentives loom large and inventory has a just-right balance of selection and quality — all of which combined can offer smart consumers an opportunity of a lifetime.
In years past, the Parade of Homes has been held in May to take advantage of the warmer weather. This year’s event is staged to take advantage of another thing entirely — the homebuyers tax credit. (An even better incentive than a nice, sunny day.) The federal tax credit, which was extended from last year, expires at the end of April, and it applies to first-time homebuyers and to homeowners who are stepping up to a more expensive property.
The Home Builders Association (HBA) of Greater Cleveland is putting on the parade during the second, third and fourth weekends (Thursday through Saturday) in April. It’s a scattered-site home tour, which means it takes place in many neighborhoods and communities simultaneously. The event will take place over a wide area, including projects west, south and east of the city and into Geauga County. More than 25 builders will participate, showcasing some of their finest work during the event. All the homes on the tour are for sale — they are ready to purchase and ready for the owners to occupy.
“Homebuyers who have been thinking about getting a newly built house have a fantastic opportunity here to get into a really nice place,” says David Payne, vice president of Payne and Payne Builders and the current president of the Home Builders Association of Greater Cleveland. He adds that though the phrase “great time to buy” is overused, it really does apply. “We won’t see this caliber of home available at these values for a very long time.”
Buyers can get so much more home for their money now because builders are able to be unusually aggressive with pricing, due to the recent low costs of building and land, combined with low interest rates, says Payne. “If you have been thinking about doing something, the tax credit is giving consumers a way to make out like bandits.”
But Payne cautions that once the tax credit goes away and real estate prices begin to inch back up, it could become impossible to reproduce homes like these at these prices for a long time.
“If you’ve been on the fence about moving in or up to a new build, this is also a great way to see what’s out there,” Payne says about the Parade of Homes. The builders participating in the parade are plentiful and varied, offering home styles from charmingly simple to over-the-top luxurious. The homes on the parade also have an upscale edge, and have been built with the newest in green-building techniques and cutting-edge design.
Payne says the homes being built today are not in the same class as homes that were built even just a decade or so ago. The way these new homes are insulated, the way their heating-and-cooling systems are set up and the types of finishes being used are all much more advanced. “The evolution that has taken place through the years is staggering, and you can’t find this type of technology in older homes,” he says. In effect, buyers interested in a new home are shopping for an entirely different product than an older home.
Chris Tsonton, vice president of the HBA of Greater Cleveland and owner of Pepperwood Signature Homes, agrees: “People shopping for a new home expect efficiency. They want their homes to work for them and not be a drain on their finances,” he says. “That is exactly what homebuilders are able to offer consumers today.”
Some of the more prevalent advancements in efficiency have to do with heating, cooling and hot water delivery. Expect to see hybrid gas/electric furnaces, which are basically gas furnaces with heat pumps used to assist production. In temperatures above the low 30s, the heat pump is able to efficiently heat the home. When the temps drop below that level, the gas furnace clicks on to do extra duty. These devices are extremely efficient, plus there is an additional federal tax credit available for homes with these installed.
Many of these homes have tankless water heaters. With these, there is no clunky water storage tank, and there are no concerns about leaking as there are with traditional hot water tanks. Instead, they are smooth, space-saving devices that heat water on demand, only heating as much as needed at one time. They last much longer than traditional tanks, which usually need to be replaced every seven to 10 years, and though they cost a little more up front, they typically prove to be worth the investment.
Another benefit that sets new homes apart from their older counterparts is the knowledge that you’re dealing with a house that has no existing problems and a nice long warranty on the structure and most of its appliances. “When you buy a brand-new home, you’re getting peace of mind with the purchase,” says Tsonton, adding that things like a new roof, new basement and moving into a home that you can create to reflect your personal taste in the décor offer unparalleled value.
The tax credit that is making these deals possible has been extended from last year, and because it now also applies to step-up buyers (buyers selling their homes and purchasing a more expensive property), more people who have wanted to move will finally have the incentive to do that.
The new deadline requires that your new home be under contract by April 30, with the actual purchase and closing taking place by June 30. And though there is a chance that the tax credit deadline could be extended, that’s not something buyers can count on.
“For the tax credit to continue there must be enough demand,” says Tom Fraser, senior vice president and chief lending officer at First Federal of Lakewood, “and we won’t find that out until the 11th hour.” So if you are on the fence about buying and you qualify for the tax credit, it’s best to make your move now and not take a chance on a possible deadline extension.
Fraser advises potential buyers to run all tax credit issues and questions by a tax adviser who can address their specific circumstances. There are special rules about income limits and adjusted gross income. There are also limits on the size of home you can buy with this program. “It’s worthwhile to check out all the details and know exactly what to expect before entering a home-purchasing deal,” he says.
Fraser often hears questions about how the tax credit affects buyers’ bottom lines. “People want to know if they have to repay the tax credit,” says Fraser. The answer is no, the credit money does not need to be repaid (unless the home is sold or is no longer the buyer’s principal residence within three years). What’s more, it can be claimed even if there is no taxpayer liability, meaning it could end up applying toward a refund.
When purchasing a newly built home, the rules for the tax credit are essentially the same. But the construction must be completed by June 30 in order for the buyer to take possession in time to qualify. All of the homes in HBA 2010 Parade of Homes are completed, ready to purchase and move in right away — so buyers don’t need to worry about that rule.
“The Parade of Homes adds some excitement to all of this, whether you’re a first-time buyer or going for a step up,” says Fraser. Banks are ready to help with creative financing for new construction and want to help buyers work out the tax credit to their advantage. “Some banks are better connected with certain builders, and this working relationship makes for a smooth, easy financing process,” he says.
The bottom line is that this is a very attractive time to buy. Rates are low by historical standards, and there is a wide variety of financing options. Fraser points out that community banks like First Federal of Lakewood are well versed in working with those options, and that it is a good idea to check with your builder for lender suggestions.