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The Senate voted on Wednesday to extend the home buyer tax credit through April 30, 2010.
The National Association of Realtors had been pushing hard to extend the credit, as well as include non-first-time home buyers, saying the legislation has helped stabilize the housing market and increased home sales, projected at 5.1 million for the year.
Supporters of the tax credit say that it has helped to boost existing home sales in recent months and that the housing market, and broader economy, would suffer if it is allowed to expire. They contend that extending the credit would help further support sales, stabilize housing prices and generate jobs in the face of an expected increase in foreclosures next year, which is expected to put ongoing downward pressure on prices.
"Tax credits like this only work by creating the sense of urgency to take advantage of them," Sen. Johnny Isakson (R-GA), the measure's main sponsor, said in a statement. "This is the last extension of the home buyer tax credit, and I urge all Americans whether they're first-time buyers who've always dreamed of having a home of their own or someone who's been gridlocked in the failure of our move-up market to take advantage of this opportunity."
- The program is being expanded to include a $6,500 credit to buyers who "move up" or "trade-in" their home for a better one, as long as they have lived in their current property for at least five years.
- The credit will not cover second homes.
- It is limited to homes purchased for less than $800,000.
- The credit will be extended to a larger pool of buyers by raising income caps to $125,000 for single filers and $250,000 for joint filers, up from $75,000 and $150,000, respectively.
- Provisions strengthening the authority of the IRS to oversee the processing of credits have also been included in light of reports of rising fraudulent claims. A HUD-1 settlement statement will now be required when claiming credits.
Whereas I agree that the tax credit has bolstered demand in a weak market, but I am concerned that the brief extension and expansion of the homebuyer tax credit merely delays a future decline in housing demand.
1) How many purchases, motivated by the credit, would have otherwise fallen in the second through fourth quarter of the year? Much like demand for cars withered after the cash for clunkers program expired, I anticipate that demand for properties will wither when the tax credit expires. Other variables are pertinent…interest rates at the time, unemployment and consumer confidence.
2) Typically April – September is the busiest season for home sales. With the credit expiring at the end of April, how much impact will it really have on the overall economy? Is there an assumption that the standard demand associated with that season offset the decline in purchases associated with the expiration of the program? Isn’t part of the increase in demand due to the employment market? I find that many of my clients moving in the spring and summer are relocating based on employment. How will joblessness impact spring demand?
3) Is the expansion to slightly higher income brackets and existing homeowner upgrades enough to alleviate the pressure on the mid to high end of the housing market? Homeowners with property valued $250-$500K have been hit hard by unemployment. Demand is low for homeowners selling existing property. Whereas this demographic may have the reserves to sustain themselves for several months, the lack of support granted to this group could result in a new wave of property foreclosures.
Input? Questions? Concerns? Ideas for future articles? Please email me or send me a tweet.
Comments
Leslie,
Expanding this is giving tax breaks to those who do not need them, earners of "$125,000 for single filers and $250,000 for joint filers" and causing us to go further into debt. The original plan was to focus on the lower-end, first time home buyer. It's met with some success. But this extension and expansion now is wrong-minded and political bribery, like that mailing out checks to everyone stunt to try and stimulate the economy. It's no longer good for housing and it's not good for our national budget.
@JohnScottSmith
Well it's going to be great for me and my family. We will be taking advantage of this opportunity to be first time home owners. Thank God for allowing this extension to occur it is right on time!
What is the logic behind current homeowners being in the home 5 years in order to get the credit?
Whereas I am happy that the credit is helpful to the Austin family, I agree with John Scott Smith that there are long term costs associated with these stimulus packages that is being ignored. That is a blog for another day. Larry, who knows what algorithm or equation was utilized to determine the limits to the program vs. cost vs. added value?
I am getting a lot of email regarding whether the expansion in eligibility is going to be applied retroactively. Whereas I didn't read anything addressing that specifically, I doubt it. To give a tax credit to completed purchases would add nothing additional to the economy.
The current bill is due to expire at the end of this month. I didn’t read anything indicating retroactive application of the expanded eligibility.
I would expect the new provisions to be effective December 1st. It is a significant write-off, especially for a end of the year purchase where tax liability and interest are not going to be part of the equation. Some homebuyers, with late November closings, may find it advantageous to stall the closing for a week.
leslie,
I am about to sign the closing document of my current house and close the purchase of the new house next week, will I qualify for tax credit?
Sandy: I don't think so. The expansion of the guidelines for the tax credit will not be applied retroactively. The current program expires Nov. 30. The extension/expansion period commences December 1.
According to the bills text it states that (1) IN GENERAL- The amendments made by subsections (b), (c), (d), and (g) shall apply to residences purchased after the date of the enactment of this Act. Date of enactment is when the President signs the bill into law... That should be Friday Nov. 5th and not December 1st..
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