A big step forward for extending -- and expanding -- the homebuyer tax credit
Oct 29th 2009 9:50AM
Updated Dec 4th 2009 5:21PM
If the Senate actually passes the bill, the House, where over two dozen versions are floating around, may finally decide to act. But IRS reports of fraud and lukewarm support of the Obama administration seem to have stalled the bill on the House side. So, it could just agree to take up the Senate bill after it passes the Senate to move the legislation quickly to Obama's desk.
The White House doesn't fully support the extension and expansion because it's concerned about the cost and adding to the deficit. Housing & Urban Development Secretary Shaun Donovan took the lead in the fight against the credit to the Senate Banking Committee. He noted that while the measure is popular, he questioned whether it's worth the cost. At the same time he was questioning the tax credit, the White House also had the Treasury Department raising issues about fraud through testimony by the IRS.
Industry experts believe that if the tax credit is not extended housing demand will take a hit and home sales likely will drop. Some are skeptical and point to the negative report that new home sales in September 2009 fell 3.6 percent from August 2009 and 7.8 percent from September 2008. Resales, however, didn't see the same drop. Resale deals are better right now because of all the foreclosures and short sales still available.
Mark Zandi, chief economist of Moody's Economy.com, supports the extension. He wrote in June, "Based on simulations of the Moody's Economy.com macro model, the expanded tax credit, if extended through the end of 2010, would increase 2010 sales by almost 600,000. This in turn would generate $33 billion in additional real GDP, lifting growth in 2010 by about 25 basis points." In addition, he said, "Benefits would flow to a range of hard-pressed industries, including mortgage lenders, real estate firms, insurance companies, property maintenance and repair businesses, and building supply retailers."
While the extension as now written wouldn't go through the end of 2010 as Zandi suggested, buyers with contracts in hand by April 30 and closed by June 30 could use it. First-time homebuyers would get an $8,000 credit, and some existing homeowners would get a new credit of $6,500. To qualify, existing homeowners would need to have been in their current residence for a consecutive five-year period in the past eight years. The Senate also raised the qualifying income limits to $125,000 for single taxpayers and $250,000 for joint taxpayers. The Senate doesn't want to make the credit available to investors but does want to help move-up buyers.
Key details still need to be worked out with the IRS to be sure the tax agency will have the tools it will need to prevent fraudulent use of the credits. House Ways & Means Chairman John Lewis will need to be assured that the IRS can identify fraud before he supports the extension.
While no plan can be ironclad in all matters, arguments such as Zandi's seem most likely win out eventually.
Lita Epstein has written more than 25 books including The 250 Questions You Should Ask About Buying Foreclosures.