FED FIRST-TIME HOMEBUYER TAX CREDIT! Will It Be Extended? Should It Be?

FED FIRST-TIME HOMEBUYER TAX CREDIT! Will It Be Extended? Should It Be?

BILLS PENDING IN CONGRESS WOULD EXTEND FOR ANOTHER YEAR. WILL IT HELP?

Early this year when Congress passed and President Obama signed an $8000 non-repayable income tax credit for First Time Homebuyers who purchased and closed on their new homes before November 30 2009 the qualification deadline seemed almost one thousand years away. Early on some blamed the long qualification period for lackluster response to the program initially.

Here in Chicago and within our Team we can count over a dozen of our buyer clients who have taken or will take advantage of the tax credit. Three more are currently in process for closing. It’s hard to say if the credit precipitated the purchase or if those buying would have bought a home anyway. However the rather substantial $8000 credit was often one of the first questions for these first-time buyers.

But now as reported by Kenneth R. Harney in last Friday’s Chicago Tribune there might be a housing rush among first-time homebuyers – according to Fed rules those who have not owned a home within the last three years – to find their home and have the transaction close by the end of November deadline – just over three months away.

Further complicating the process – tighter loan underwriting rules have added to loan processing time. In addition the Thanksgiving Holiday falls this year on November 26th with the 30th falling on the following Monday. Here in Chicago and elsewhere attorneys and escrow companies booking closing time at title companies may find them booking up fast during those last qualifying days.

So to give homebuyers the real estate agents that represent them and those title companies where the sales close a bit more breathing room – should the credit be extended?

Look no further than the "Cash For Clunkers" Program. Introduced by the Fed just a few weeks ago many estimate the incentive program which provided as much as a $4500 credit to those buying select fuel-efficient new cars in return for trading in for scrap their old gas-guzzler older vehicles resulted in sales of over 300000 vehicles.

But now that program is over. Will new car dealers now feel the hangover of weak sales for months to come?

And could the same thing happen in the housing market?

Will the end of the credit whether it be the end of November or a year from that time create sales lags in the future? Or will it help get us over the housing slump – albeit at high cost to taxpayers now or down the road?

The housing industry’s two biggest trade organizations – the National Association of Realtors and the National Association of Home Builders are lobbying hard for an extension. NAR estimates the credit has incentivized as many as 350000 new homebuyers to step to the closing table this year. They see additional economic benefit as well – these new homebuyers then purchased appliances furniture lawn edgers and the like to put in their new homes.

In Congress bills to extend the credit – or even expand it to all homebuyers not just first timers – is likely to be hotly debated as Congress returns from its August recess next month. One proposal would increase the credit to $15000 through all of 2010.

Is there enough time for an extension to be approved in advance of the November 30th deadline? After all President Obama’s Health Care Initiative is likely to take center stage in debate. And if extension is uncertain into October buyers will likely act as if the credit will not be extended. Will they delay their purchases feeling they have lost their opportunity to receive the credit until passage seems more certain?

And how will the billions in lost tax revenue be made up if the program is extended beyond its current deadline?

Finally when the program even if extended finally does end will housing sales tail downward? Or is this temporary shot in the arm – the extension of the credit – simply the bridge we need to restart the housing engine?

Of course proponents hope a credit extension is a just a needed stimulus and it will no longer be needed as the housing market recovers. But we’ll have to see!

DEAN MOSS & DEAN’S TEAM CHICAGO