Will the Home Buyer's Tax Credit be Extended?

It’s that time of year again: time for lobbyists to convince Congress to extend the home buyer tax credit.

The National Association of Realtors and other industry groups are beginning to make the rounds on Capitol Hill to press their case, which goes something like this: We know you’ve extended the tax credit two times already, but the housing market is still fragile, the tax credit is working, and don’t forget– you’re up for re-election soon. In other words, do you really want to own the next leg down in home prices?

They’ll also make their case by reminding pols that a series of other market supports are being removed, the largest of which is the Federal Reserve’s purchases of $1.25 trillion in mortgage-backed securities that expires next month and has pushed mortgage rates to postwar lows for much of the past year. The Federal Housing Administration is also under pressure to pull back its lending, and more foreclosures could add to the housing inventory as borrowers fail to qualify for modifications.

Industry groups are also pushing the argument that the credit should be extended because it’s taking so long for banks to approve short sales, where lenders agree to a sale for less than the value of the mortgage.

To recap, Congress first passed a $7,500 tax credit in 2008 for first-time buyers, but that credit had to be repaid over 15 years. When it expired one year ago, Congress extended it, expanded it to $8,000, and said it wouldn’t have to be paid back. Just before that credit was to expire last December, Congress extended it again, until April 30 (sales contracts signed by April 30 have until June 30 to close). A new credit of $6,500 was created for current home-buyers. “There’s nothing more permanent in Washington than a temporary tax credit,” jokes Howard Glaser, a housing-industry consultant.

This time, the lobbyists certainly have their work cut out for them. For one, industry groups last time swore that the last tax credit extension would be, well, the last extension. To secure the deal, the lawmaker who shepherded that effort through Congress, Sen. Johnny Isakson (R., Ga.), made clear at the time that extending it again would be a nonstarter. (His spokeswoman says that he has no plans to offer any legislation extending the credit. “Part of the benefit of the tax credit is the urgency of it sunsetting,” said spokeswoman Sheridan Watson.)

Economists mostly agree that the tax credit has helped to goose demand and sell more homes, though there’s still considerable debate over just how many homes would have sold anyway.

Mark Zandi, chief economist at Moody’s Economy.com, pushed to extend the tax credit last fall but says now it’s time to let it expire. “It’s worn out its benefit,” he says. “If you extend it again, it isn’t going to do much, and what you’re doing is providing a tax break to folks who bought anyway.”

While there’s still about 10 weeks before the current tax credit expires, that doesn’t leave much time for buyers looking to cash-in, notes Keith Gumbinger of HSH.com, a financial publisher. Home sales surged last October when it looked like the tax credit might expire for good, and then plunged in December, once it the credit had been extended.

(from the Wall Street Journal)