Since earlier this year we’ve been talking a lot about the $8000 first time homebuyer tax credit that was passed as a part of the 2009 Economic Stimulus Package. The credit has been available for first time homebuyers since January 1st, and will continue to be available until November 30th. Now that the program is beginning to wind down, the rumblings about trying to get the program extended or modified have begun. A few months ago there was talk about the tax credit being increased to $15,000, but that never got off the ground. Another bill that was introduced last month also never got out of committee. So while there is interest in passing an extension, nothing has come to fruition yet.
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Many Hope For An Extension Of The First Time Homebuyer Tax Credit
The National Association of Home Builders are saying that they’re already beginning to see new home purchases starting to drop since the program will soon be gone:
In order to create hundreds of thousands of badly needed jobs and move the economy to higher ground, the National Association of Home Builders (NAHB) today called on Congress to extend and expand the $8,000 first-time home buyer tax credit set to expire at the end of next month.
Testifying before the Senate Banking Committee, NAHB Chief Economist David Crowe warned that builders are reporting that business generated by entry-level buyers is already declining because it is now too late to complete a new home sale in time to take advantage of the tax credit.
To spur job growth, help reduce foreclosures and excess housing inventories and stabilize home values, NAHB is calling on Congress to extend the home buyer tax credit for an additional year through Nov. 30, 2010 and make it available to all purchasers of a principal residence.
The drop in business seen by home builders is real. The number of building permits for new homes dropped significantly in September
Applications for home building permits, a gauge of future construction, fell in September by the largest amount in five months — a discouraging sign for the housing industry.
The decline, in part, reflected uncertainty about whether Congress will extend a tax credit for first-time homebuyers.
The applications for building permits fell 1.2 percent in September. That’s the biggest decline since a 2.5 percent drop in April and underscored worries that the fledgling housing revival could be derailed by rising unemployment, tighter bank lending standards and the expiration on Nov. 30 of the government’s $8,000 tax credit for first-time homebuyers.
Is The Tax Credit A Good Idea? Some Think It Won’t Make Much Of A Difference
Many in the building and real estate industries are clamoring for an extension of the credit, while others aren’t so sure that the cost of extending the program are worth it.
Housing Secretary Shaun Donovan said at a congressional hearing Tuesday that supporting the housing market “can be very expensive, especially at a time of significant budget deficits.”
The administration will make a recommendation on whether to extend the credit in the coming weeks, after studying data on tax filings from the Internal Revenue Service. While there would be some negative effects if it were allowed to expire, Donovan said, “I do not believe that a catastrophic decline would be the result.“
Some analysts and lawmakers are skeptical about extending the credit, arguing that most homebuyers who receive it would have decided to buy anyway. And soaring unemployment is likely to dull the impact of any extension, Mark Vitner, a senior economist with Wells Fargo Securities, wrote in a note to clients.
“Many of the most likely buyers targeted have already taken advantage of the program,” he wrote.
The Newest Tax Credit Bill Piggybacks On Unemployment Benefits
So there is clearly division as to whether the program should be extended. Other bills to extend the credit and increase the amount it gives to homebuyers have already died a slow death in committee never to again see the light of day. This week Congress is once again considering another plan that would extend the credit through June of 2010. Whether this new one will make it out of the committees remains to be seen.
The latest Senate proposal would drop the requirement that the credit be available only to first-time buyers, broadening the reach of the program but also adding to its cost, estimated by congressional analysts at $16.7 billion.
The backers of that idea, Sens. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., chairman of the Senate’s banking committee, have suggested that their measure be attached to another pending bill aimed at throwing a lifeline to people hit by the recession, an extension of federal assistance to the millions in danger of exhausting unemployment insurance benefits.
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The Isakson-Dodd proposal would extend the credit to June 30, 2010. It would also remove the first-time homebuyer requirement and raise the eligibility income limit to $150,000, or $300,000 for a couple. That’s double the current phase-out limits.
Provisions Of The New Proposed Homebuyer Tax Credit
So if this new bill that is piggybacking on an extension of unemployment benefits were passed, it would mean that the tax credit would be extended, and the new provisions would be:
- You would not need to be a first time homebuyer – that provision would be removed.
- It applies to homes purchased through June 30, 2010.
- You must keep the home for three years.
- The credit is refundable.
- The credit is for $8,000 or 10% of the home’s value, whichever is less.
- It phases out for incomes between $75,000 to $150,000 for single and $150,000 to $300,000 for couples.
So while it is still unsure as to whether this particular extension of the first time homebuyer tax credit will be passed, the momentum for an extension to be passed in some form is very real. I would expect something to be passed at some point this year.
UPDATE: A new bill has been “agreed to” by Senators, that would extend the credit and add a $6500 Tax Credit for current homeowners. Details here.
What do you think? Should the tax credit for homebuyers be expanded to all homebuyers, and extended until June of 2009? Will the effect it has on our economy be worth it, or will it be just another large expenditure when we are already running huge deficits? Let us know your thoughts in the comments!
I’m actually wondering whether or not this will eventually turn into a permanent tax credit, on the order of the mortgage interest tax breaks.
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This does not apply to me, and it’s just as well. I kind of feel like waxing long about government and taxes, but I won’t. I will just say that I truly hope that this program ends up benefiting those in need.
Thanks for the solid breakdown of the program Pete.
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I think it isn’t fair that my wife and I don’t get the $8000. We bought in April this year and even though it was my very first home,my wife had owned her own(we married in 2008) They should have a provision where we would be eligible for 1/2 under those circumstances. $4000 would pay for 75% of the new roof we just had installed.
I think that Miranda hit the nail on the head. Politicians don’t want to see what will happen when the program stops. It never should have been started in the first place. It is not enticing people into the market. It is just benefiting those who were going to be buying to start with. It is another waste of taxpayers’ money by the government when they should have let the free market system weed out those companies, homeowners, realtors, etc. who wouldn’t have made it originally without a handout.
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i think they should extend the tax credit and open it up to all homebuyers and to people that need to refinance thru a bank because they are under owner financing at this time because my situtation was, i never have owned a home, so i have never had a mortgage loan. but i got divorced,had to buy a home for me a my daughter. i am low income but not on any help and because my ex didnt pay upfront any monies owed to me, the bank wouldnt take my loan because i had to prove that my ex pd me, which he never did, so the owner decided to carry me for 5 yrs, bless his heart, but i need to refinance thru a bank, which i have great credit, never been late but not enough income, i am self employed, so i am probably going to lose my home because a bank wont finance me because they have messed themselves up in the past because they would just give big loans to people that wouldnt pay or couldnt, so that has messed people like me up that do pay their bills no matter what, i dont live beyond my means. sad, sad, sad
I think the credit definitely should be extended and opened to everyone, and it should have been written that way in the beginning. The arbitrary three-year window on ownership was foolish–if anything, it should not have been “owned” in the past three years, but “bought” in the past three years. For instance, If you bought a principal residence last in 1992, but owned until 2007, you would not have been eligible. It penalizes ownership, rather than rewards buying. So a rewritten, broadened, and extended provision is long overdue.
I think the tax break should be extended until june 10 anyway. Im buying a house(via divorce)for the first time on my own for me and my daughter. I started this process late sept. and will be pushing to get it done by nov. 30. I’m not asking for a handout from anyone, but if the gov. is going to give me money , i sure want to take advantage of it. And yes, I work, pay taxes, and never been on any gov. programs. This tax break was intended to help people like me who have contributed all my life(40 now). It would be a shame to miss out on that money because I might miss the deadline by a week or so. With that $8000, I could stimulate the economy in my hometown by buying a little furniture, etc. So yea, I think we need to extend it for those who are already in the process of buying a home.
It’s frustrating because now the latest is there will also be a $6500 credit to people buying but have been in their current home at least 5 years. My wife bought in 2005,we met in 2007,married in 2008 and bought a home (my first) in April 2009. This leaves us out of any possible credit,never mind the fact that since we purchased our house we spent $6000 for a new roof,$2000 for a riding mower…etc..etc..we helped stimulate economy but yet the govt.won’t help us. How sad. :(
HOPE IT EXTENDS BCAUSE IM IN LIMBO AT THIS TIME AND I WANT TO BUY MY FIRST HOME. BUT THE MORTAGAGE COMPANY WILL NOT FINISH BY THAT TIME. SO JUNE 2010 SHOULD BE PERFECR FOR STRUGGLING SINLGE PARENTS OR LOWER INCOME FOLKS LIKE ME IN A BORDER TOWN IN TEXAS!!!
that 8000 tax credit was my motivation for purchasing a new home, I had everything set up to go,,,got the contract by dealine was set to close prior to Jul 1 2010 but my town was hit with bad weather not once but fourtimes and a state of emergency was delclared twice yet due to that bad weather my close date was pushed back and wouldn’t you know i was told that I could not claim the tax credit. Its not fare, to be punished for somthing that was beyond my control. I wrote every legislator and Senator and even the President because that credit was for struggling folk like myself who had never had house as was suppose to be an incentive yet no one could offer real help. Its not fair we really counted on that tax credit to recover the family after the purchase. Are they gonna offer it again I was sooooo close…dang snow and heavy rains. Wheres the help when the little people really need it. Can anything be done
I HOPE THERE WILL BE AN EXTENSION, UNTIL NOV. 2010, WE HAD A BINDING CONTRACT BY APRIL 30,2010 AND A CLOSING DATE ON 6-21-2010, BUT DID NOT TAKE PLACE, BECAUSE OF THE BANK, IS REALLY BACK UP, SO WHAT CAN WE DO, PLEASE PUSH THE BILL. NEED HELP!