This may be some good news for first time home buyers.
NY Times is reporting on the possible expansion of the housing tax credit to existing homeowners.....
October 8, 2009
Democrats May Extend Tax Credit for Homes
WASHINGTON — Democratic Congressional leaders are working with the White House to extend an expiring $8,000 tax credit for first-time home buyers, and aides said Wednesday that they were considering making it available to current homeowners who purchase a new residence.
Extending and possibly expanding the popular home-buyers credit, which is due to expire after November, is high among options for further stimulating the economy and creating jobs, Congressional aides said, though a White House official said it was only briefly mentioned on Wednesday in an Oval Office meeting between President Obama, Speaker Nancy Pelosi of California and Senator Harry Reid of Nevada, the Senate majority leader.
The Democratic leaders met with the president to discuss a broad range of options to combat persistent high unemployment, officials say. The existing credit for first-time home buyers will expire at the end of next month if not extended, and two other components of the economic safety net — unemployment compensation and health care benefits for those who have been out of work for long periods — will expire at the end of the year.
Besides the likelihood of extending those measures, which were part of the $787 billion stimulus law earlier this year, the president and Congress were also weighing additional steps, given projections that jobs will continue to be lost into the middle of next year despite signs of economic recovery, possibly driving the unemployment rate above 10 percent. But they insist that any package will not add up to a second stimulus package, a prospect that would invite Republicans’ attacks on the effectiveness of the first.
Keeping the home-buyers credit and broadening it has been a priority for real estate agents and the home builders lobbies, and for Mr. Reid, who faces a tough re-election race next year in a state that has been among the hardest hit by the housing crisis since mid-2007. In a statement after the White House meeting, Mr. Reid said the government should “continue efforts to strengthen the housing market by extending the home-buyer tax credit.”
By the time it is scheduled to expire, for home purchases that close before Dec. 1, the home-buyers credit will be responsible for nearly 400,000 sales of new and existing homes, out of total sales of 1.4 million, said Mark Zandi, chief economist at Moody’s Economy.com. That is roughly in line with estimates from the National Association of Realtors.
Mr. Zandi, who formerly advised Senator John McCain, Republican of Arizona, and is now consulted by Democrats in the administration and in Congress, has advocated extending the credit through next August and making it available to all home buyers.
Allowing the credit to expire this year would result in a decline in sales of homes that are not facing foreclosure just as sales of foreclosed homes are expected to pick up, Mr. Zandi said in an interview, “putting further downward pressure on house prices.”
“The economic recovery will not evolve into a self-sustaining economic expansion and risks unraveling back into recession until house prices stop falling,” he added.
But the tax break is not cheap. Congressional analysts put the cost in lost tax revenues at about $1 billion a month. Mr. Zandi said that expanding the availability of the credit to more home buyers through August would cost perhaps $30 billion. While some in the housing industry have proposed nearly doubling the credit to $15,000, Mr. Zandi said $8,000 “seems to have been a sufficiently powerful incentive.”
While Democrats in Congress and the White House emphasize that no decisions have been made about the home buyers credit or any other measures, two officials said that the cost of extending the credit could be covered by redirecting money in the two-year $787 billion stimulus package that was scheduled to be spent after this year.
The current credit is limited to buyers who earn up to $75,000 a year, or couples who make $150,000; in gradually smaller amounts the credit is available to individuals with income from $75,000 to $95,000 and to couples making from $150,000 to $170,000. While the housing industry supports lifting the income caps so that even wealthy home buyers are eligible, White House and Congressional aides say that is not under discussion.
On Thursday, the House is expected to pass legislation from Representative Charles B. Rangel, Democrat of New York and chairman of the House Ways and Means Committee, to extend the credit through 2010 for people who have been out of the country this year in the military or intelligence or foreign services.
Mr. Reid is a co-sponsor of a bipartisan Senate bill that would extend the existing credit for six months, through May.
The home-buyers credit has come in for criticism similar to that lodged against another popular stimulus program, the “Cash for Clunkers” subsidy that went to people who traded in vehicles for more fuel-efficientmodels — that the credit persuades people to act faster on purchases, depressing activity later.
Industry officials counter that expediting home sales helps to stabilize home values now, which is essential for sustaining economic growth. And unlike car sales, home sales have a multiplier effect that spurs job-creating growth throughout the economy. Lawrence Yun, chief economist for the National Association of Realtors, said each house sale on average yielded $63,000 spent on goods and services, like moving vans and furniture.