No Increase, but Congress to Extend $8000 First-time Home Buyer Tax Credit into 2010 and Make Available to More Home Buyers and Owners
[Updated Nov] - See this post for details on the home buyer credit extenstion approval and new provisions: 2010 First-Time Homebuyer Tax Credit Extension Approved and Expanded to Existing Home Owners. New Provisions Not Retroactive
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A number of would-be home buyers and the real estate industry are anxiously wondering if Congress will extend the $8000 new home buyer credit expiring on Nov. 30. I have been covering this credit in a few other posts, and today news reports say that Senate leaders have tentatively agreed to a plan (bill) to extend, but gradually reduce the $8,000 first home buyer tax credit through 2010. Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus of Montana, both Democrats, may seek to add the home buyers extension to legislation extending unemployment benefits and small business tax breaks that may be debated as early as this week, according to Regan Lachapelle, an aide to Reid.
The proposed (democrat sponsored) bill to extend the credit contains the following new provisions: (see this post for details on the existing home buyer tax credit)
- First-time home buyers who close before April 1 would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.
- The plan would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.
- Homeowners buying a new property could qualify for a $6,500 credit if they have lived in their previous residence for five years
- The home buyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.
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More than 1.2 million borrowers have claimed almost $8.5 billion of the $13.6 billion set aside for “first-time” home buyer tax credits this year. The program is aimed at easing the worst housing slump since the Great Depression and has been credited with boosting the economy and stock markets over summer.
Lawmakers are under pressure from real estate agents, mortgage brokers and home builders to extend the $8,000 credit before it expires Nov. 30. However, they are also facing pressure from governance groups and recent IRS reports claiming widespread fraud around claims for this lucrative credit. The IRS has identified 73,799 claims totaling almost $504 million that may not be from first-time home buyers. They also found that 582 taxpayers under 18 years old and ineligible to buy a home claimed almost $4 million in credits.
The terms for extending the home buyer tax credit are still being negotiated in Congress and I will continue to update this article If you haven't already, I encourage you to subscribe for free via Email (A confirmation email is sent to avoid spammers) or RSS to get the latest news.
Related housing and Stimulus posts:
~ $800/$400 Making Working Pay Tax Credit
~ Key Dates for Stimulus Payments
~ New 401k and IRA Contribution Limits for 2010
~ Getting the 2009 and 2010 $250 Social Security Payment
~ 10 Deadly Mistakes Buyers Make When Purchasing a Home and How to Avoid Them
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October 28, 2009 10:35 PM
This bill helps create another housing bubble that will only lead to another housing market crash.
Congress is fully aware of the damage they are going to cause as millions of homeowners will get crushed when the housing market crashes a second time from this bill.
But they don't seem to care as we approach the 2010 elections. They want to juice the economy with more printed money that will have to be paid for by the next generation.
October 29, 2009 10:40 PM
Curt - While I agree with you to some extent, I don't think on it's own that the credit is inflating the housing market. It just helps with closing and initial housing costs. If you can qualify for a loan in the current market, you probably didn't need the $8K credit to afford the house - it is just the icing on top.
I also had this article in Reddit, and thought I would publish some of the more interesting comments here.
October 29, 2009 10:41 PM
(ssladam) If you can't sell the house unless it's $8000 cheaper, THEN THAT'S THE VALUE OF THE HOUSE.
But omigosh! We can't let house prices fall that far... America will be in a panic. By jove, I've got it! Let's subsidize houses with an 8K "credit" and we'll artificially keep the price of a new house higher! Everyone wins! (Except the taxpayer, of course, but who cares about that bum anyhow?)
(dirtyde00) The Census Bureau counts approx. 160 million households, so if each house lost eight thou- that would be a loss of approximately-- 162 million times 8000 = one trillion two hundred ninety-six billion dollars of worth in America. This is all just conjecture, but big businesses have a lot to loose in this and since we live in a Fascist country, we cannot allow those businesses to fail because, well- that would be too much change for people making the money. They don't like change, the economy is based on an assumption that it will expand. When those walls come down, as we saw earlier this year, people will loose faith in the market, which is all that supports the idea that money is worth anything. Pray to the Stock Market my friends, and Goldman too as those are the most powerful Gods we have today.
October 29, 2009 10:42 PM
Giving people 8000k to buy a house has only ONE effect: it raises the price of that same house by 8000k. This is basic economics the populace of this country still seems too stupid to understand. This only helps SELLERS, BANKS and REALTORS with a backdoor bailout. It does absolutely nothing for everyone else except keep housing artificially inflated, at the huge cost to taxpayers, for the corrupted bankers and realtors.
Its first time buyers only, so the majority of people won't have the 8k incentive. Unless they are aware that they buyers meet the requirements, which they shouldn't and should know its the less likely option, the price of the house won't increase by 8k. Although, the increase in demand will raise the price of a home if this works like its supposed to. From being involved in a few home purchases, the demand for that specific house is the only influence over price I've seen. Prices go up and down quite a bit depending on bid wars. This 8k will give first time buyers an advantage, deserved or not.
October 29, 2009 10:43 PM
I would like to point out that as someone who can afford a large monthly mortgage (in that I live somewhere expensive, relative to the rest of the country; not relative to say, Beverly Hills) but the final mile closing costs were daunting (I got slammed with a surprise $1k at the closing table), this 8k made a huge difference. Also, I bought before the credit was available at closing time (I can budget for a year, thanks) - sellers who are losing a hundred thousand on a property aren't exactly amenable to ALSO eating closing costs. It's money I'd have had months down the road, and it doesn't change my ability to pay 12 months times 30 years worth of mortgage payments (oh boy, $22 extra dollars!), but it did move up when my county and state are collecting tax money from me.
Home owners are irrational. They will hold their breath for years until they get what they BELIEVE their home to be worth. What's worse, a lot of buyers are just flat stupid, so they buy at list. I believe a "correction" will come when the market can bear the "anchored" number people have in their heads, not before.
October 29, 2009 10:43 PM
I agree that in the big picture $8k shouldn't be enough to substantially skew a home buying decision. However, that's not what I'm seeing in practice.
Ever since the tax credit has been available, I've seen many of my (mid-twenties) friends clamoring to buy a house under the logic that they're going to get $8k in free money and who knows how long it'll last. In the short term, $8k seems like a lot of money and these short lived stimulus programs create a sense that you need to act immediately or risk missing a deal. The result is that they're buying houses that they might not really be ready for because the free money is sort of a use it or lose it situation.
I saw the same problem in the Cash For Clunkers program: Because the government was offering a significant amount of cash that was only going to be available for a short amount of time, there was a lot of pressure to make a quick decision. Even if your old (paid off) car still had a few good years left in it, the program put artificial pressure on people to scrap it and buy a new car.
If this recession has taught me anything, it's that a group of people trying to make quick decisions about large sums of money doesn't work very well.
October 29, 2009 10:44 PM
Actually, that $8k is about enough for a 3.5% down payment on a lot of sub $300k homes, and that's all the FHA requires, so it's allowing a lot of people with no down payment, who shouldn't be buying homes, to do so.
That covers a lot of homes. Even in L.A., you can find a TON of homes under $300k (see redfin). They might not be places you or I would ever live, but there are a lot of them available.
We'll see how it turns out over the next year or two, but I think it's going to be ugly.
Yeah I heard that someone had figured out a way to use the $8k towards your down payment. Originally I don't think that was possible. It isn't usually available until the tax cycle after you move in. I bought over the summer, can't get it until next year. Doesn't help with my down payment. Any bank allowing you to assume that $8k towards a down payment is being part of the problem.
On new condos at least it still doesn't help a ton. There's rules on the books now that make it much tougher to get a loan on a condo in a facility that's less than 70% occupied already. Usually this means 20% down and +1% interest rate. I understand that's just a subset of buyers out there but it is something I ran into so I figured I'd mention it.