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Why the first-time homebuyer tax credit will be extended

first-time homebuyer's tax credit will be extendedThe New York Times reports that "After several disastrous months for home sales across the country, when volume dropped by 23%, the pace appears to be picking up again."

The reason? The first-time home-buyer tax credit is set to expire on April 30, and people are moving quickly to take advantage. But here's the problem: If you look at it objectively, it would be an absolute disaster to end the tax credit on schedule and it's likely to be extended again. The problem is that no one in Washington can say that because the whole point of the credit is to spur sales and move buyers off the sidelines, and so we continue on with a comical "It's really gonna end this time! I mean it!" routine every few months until it's extended again. David North of Coldwell Banker Bain in DuVal, Washington blogged that "Some real estate agents are pushing their clients so hard to buy in time to take the tax credit, that their clients are dumping them to work with less pushy agents." Consumers are perhaps less moved by warnings about the expiration of the tax credit, given that it's already been expanded and extended twice.

Back in January on DailyFinance, I argued for making the $8,000 first-time home-buyer tax credit permanent.

The tax credit is running at a cost of about $28 per American citizen per year and, as the economic crisis has shown, instability in housing has nasty trickle down effects for the rest of the economy.

The long-term effects of the tax credit also make it compelling. For a young family buying its first home for $150,000, an $8,000 tax credit is enough to provide 27% of a $30,000 down payment. That could be a huge chunk of a down payment on a starter home. This would allow young families to achieve the dream of home-ownership and the security it provides -- but without the low-or-no down payments and adjustable rate mortgages that created the whole housing mess in the first place.

Economist Robert Shiller is now calling for the extension of the tax credit, and Congress seems likely to make a move on it soon.

The takeaway for prospective buyers is this: relax. Don't let a real estate agent talk you into rushing into a deal to capture the tax credit. It will be extended.

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