Housing Tax-Credit Plan Draws Cautious Praise

BUT in the stucco expanse of California's San Fernando Valley, President Bush's tax proposals promise to improve the kitchen-table calculus of buying a house.

"If these things are implemented quickly, it will have an impact - particularly on first-time buyers," says Lon Adams, a senior sales associate with R. R. Gable Real Estate.

"The added stimulus could do nothing but help," says Paul Stafford, manager of Lamb Realty, sitting flanked by charts and statistics showing two years of limp sales trends.

Kick-starting the real estate market is a big part of Mr. Bush's strategy to get the economy back in gear.

"Real estate," he said in his State of the Union address, "has led our economy out of almost all the tough times we've ever had. Once the building starts, carpenters and plumbers work and people buy homes and take out mortgages."

The most significant of several proposals he made to spark real estate is a $5,000 tax credit for first-time home buyers. The credit is temporary. It applies to sales that closed between Feb. 1 and year's end. And it only takes effect if Congress votes for it.

"It's like a $5,000 discount on a home," says Gary Burtless, a Brookings Institution economist in Washington. "I expect that can do something."

The most direct effect of the tax credit would be to create jobs. It is strictly a short-term prod to the economy. It does nothing to solve long-term problems. In fact, because the credit is temporary, it will probably pull down future home sales as buyers try to close before the end of the year.

And while it can help revive a housing industry already stirring to the sound of low interest rates, commercial buildings are likely to have their vacancy signs up for years yet.

Real estate leads into, as well as out of, recessions. House and apartment construction dropped to the lowest level since 1946 last year. Since October 1989, 832,000 jobs have evaporated in construction.

Each house sold, according to the National Association of Realtors, supports three jobs in the economy.

An economist with another lobby, the National Association of Home Builders, expects Bush's tax credit to lead to an additional 200,000 new homes built this year, supporting 360,000 jobs. The group expects an additional 100,000 new homes next year due to the credit.

"With this stimulus, we're probably going to get owner-occupied housing leading us out [of recession] as it has in the past," says Patric Hendershott, a housing expert at Ohio State University.

This wall-to-mall carpet of ranch houses, bungalows, and "Leave It to Beaver" neighborhoods just north of downtown Los Angeles is a real estate mecca. One of the most active home-buying markets in the most active home-buying state, this valley holds 1.8 million mobile people, and even in these dour days more than 25 homes are sold a day.

Buying a new home, though, involves a complex of emotions and arithmetic that goes beyond simple tax breaks.

Lauryn and Leslie Leclere have been looking for a first home in the valley for a year and a half. Their decision to try to buy has not been driven by reasonable interest rates or presidential proclamations.

Instead, the couple, art directors on TV commercials, have just recently started making enough money where they believe they can make a down payment on a house, which in the neighborhoods they're looking at goes for $300,000. Better lending rates and additional incentives will just help them get more bedroom for their buck.

"We are saving more money, paying off more debt, and gradually looking at higher-priced homes," says Mr. Leclere. "I think the tax credit will help $5,000 worth. I don't feel it will change the economy."

The same goes for Fey Vaznelis. In a market as high priced as Los Angeles, she has started looking for a home or condominium because her savings account is slowly building and she had decided to stay in the city awhile. The elementary school teacher, however, does think Bush's plan "would help."

Those likely to benefit the most from the federal incentives would be buyers in cheap housing markets. In areas where the median price of a home is $80,000, such as Indianapolis, the $5,000 tax credit could represent as much as 60 percent of a typical down payment.

Others might receive a boost from an administration proposal to allow sellers who lose money on home sales to deduct some of the loss. That would aid people in markets like Los Angeles, where some home prices have tumbled 15 to 20 percent in two years.

Lower interest rates and reduced prices have stirred more buyers lately. Mr. Adams says he used to receive three or four calls a weekend. Now he gets 20 to 25.

"We have seen a substantial pickup in activity," he says.