RSS
Home
Homebuyer tax credit | Extension and expansion
Print
Email
RSS
Subscribe
Related Articles
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.
Related Articles:
Comments
