Plenty to Coax Home Buyers Back To the Market

More cash in the paycheck can help new owners adjust to the myriad new expenses (tools, repairs, unexpected bills) that come with homeownership without resorting to expensive credit card debt.

If you haven't owned a home for three years (the government's definition of a first-time buyer in this case) and your income qualifies for the new tax credit, I say take it.

That is, take it, unless you're buying in the District. First-time buyers in the District can get a better deal -- a real $5,000 tax credit that doesn't have to be repaid. It's available to buyers with modified adjusted gross incomes of up to $90,000, or $130,000 for couples filing jointly. (The credit is reduced once income hits $70,000 for singles or $110,000 for couples.) And the "first-time buyer" definition is looser, too. It's a one-year restriction on prior ownership in the District, even if you have owned a home somewhere else for years.

The law says you can't claim both tax credits, so if I were a first-time buyer in the District, I would go with the smaller amount that doesn't require payback.

These government incentives happen to be peaking as we enter the second-busiest season for Washington area real estate, September and October. The pickings this fall are about as bountiful as they're going to get. Inventories remain swollen, and sellers still expect to pay buyers' closing costs or offer other incentives. But there are signs that inventories are starting to shrink, especially in Loudoun and Prince William counties, which have experienced some of the worst of the foreclosure crisis locally.

Consider recent inventory trends reported by Metropolitan Regional Information Systems, the local multiple-listing service.

In July 2004, in the throes of the boom, homes were selling almost as fast as they came on the market. There were only 1.1 to 1.5 new listings for each sale throughout the area.

In July of 2006 and 2007, as inventories were building rapidly, that ratio of new listings to sales ballooned, peaking at 2.26 in Fairfax, Arlington, Alexandria and Falls Church; 2.77 in Loudoun County; and 3.15 in Prince William County, Manassas and Manassas Park.

That ratio now has shrunk significantly. In July, there were only 1.44 new listings per sale in Fairfax, Arlington, Alexandria and Falls Church; 1.35 in Loudoun; and 1.26 in Prince William, Manassas and Manassas Park.

The ratio remained more stable through boom and bust in the District and Montgomery County. In Prince George's County, however, where the bust hit later than in Loudoun and Prince William counties, the ratio rose in July compared with a year ago, with 2.79 new listings for each sale. That market isn't stabilizing yet. But things are looking promising elsewhere.

E-mail Elizabeth Razzi atrazzie@washpost.com.