Time may not be running out after all for buyers seeking to take advantage of the $8,000 first-time home-buyer tax credit. The incentive is set to expire on Nov. 30, 2009. But persuading Congress to extend the incentive into 2010, raise the tax credit's upper limit to $15,000 and loosen some of the income limits are the top agenda items for the legislative arm (aka the lobbyists) of the Mortgage Bankers Association, according to
a recent report from Marketwatch.
The NAR and National Association of Home Builders support the extension, naturally, as their members have much to gain from the uptick in business the tax credit provides. According to NAR Regional Vice President Joseph L. Canfora, a broker-owner with Century 21 Selmar Realty in East Islip, N.Y., the $8,000 tax credit triggered between 355,000 and 400,000 real-estate transactions and helped decrease the number of homes for sale.
In a normal market, there are six to seven months of housing inventory for sale. When the tax credit was enacted in February 2009, inventory was at 9.1 months, according to Canfora. As of August 2009, inventory was at 8.2 months, the first move toward "normal" since 2007.
Fewer homes for sale, low interest rates and other positive news about the real-estate market certainly buoy the spirits of real-estate professionals and home sellers. However, is it time to let this $15 billion program "die with dignity," as Martha C. White
wrote recently in The Washington Post? She has plenty to say about why extending the tax credit, let alone increasing it to $15,000 and opening it to a wider array of home buyers, is a bad idea. According to White, the real cost to taxpayers is more like $43,000 per first-time home buyer, not just $8,000.
White goes on to say, "The credit also artificially inflates the value of eligible homes sold by up to $8,000, leaving the buyer with a debt that's greater than the value of the property." Hmmm... sounds like a familiar scenario that didn't end well the last time it played out.
According to White, another looming issue, should Congress extend the tax credit and raise the limit to $15,000, is that buyers will overextend themselves to buy more house than they can comfortably afford. That could eventually trigger The Great Foreclosure Wave, Part 2, though mortgage lenders are certainly taking a harder look at mortgage applications, buyers' employment histories, credit ratings and annual income.
The Federal Reserve has kept mortgage rates extremely low, and that's one of the strongest assists the government can give the housing market. Ending the home-buyer tax credit on Nov. 30 will hurt in the short term, says White, but without pain, there can be no long-term gain.
-- Valerie Patterson oversees all online and print marketing efforts at Kurfiss Sotheby's International Realty, a privately-owned real-estate firm based in the Philadelphia area. Prior to joining Kurfiss, she was the producer of The Wall Street Journal's free real-estate site, RealEstateJournal.com.