Congress Extends Home-Buying Tax Credit

In a bold, unforeseen move….oh who am I trying to kid? In a move that everyone saw coming, Congress voted (and President Obama approved) to extend the popular tax credit for homebuyers for an extra six months. [Given the growing sense of discontent with heretofore government efforts to restore balance to the market, perhaps they didn't have any other choice.] The program was originally slated to expire in November, but thanks to popular demand (and prodding from lobbyists in the real estate industry), it will now run until April. “To qualify for the credit, buyers have to have a binding contract on a property in place by April 30, and need to close on the sale by June 30.”

The program has also been modified slightly from its original form, in which only first-time buyers with a maximum combined income of $150,000, were eligible for the $8,000 tax credit. In its latest iteration, the tax credit will be available to an even wider demographic. First-time homebuyers will still receive a tax credit worth $8,000, but the income restrcitions have been raised to $250,000, which means that all but the wealthiest 2% of Americans are now eligible. In addition, those wishing to make a new home purchase (but are not first-time buyers) are eligible to receive $6,500 for so-called “Trading Up” purposes.

For many homebuyers rushing to close on a home purchase, the extension was no less than a windfall. It appears that many had orignally underestimated the amount of time it can take to close (sometimes several months); now that they have until May 1 to close, there is less of a need to rush. In addition, the tax credit credit can still be claimed in advane, in the form of a loan from the government. In this way, homebuyers looking to make a purchase now, won’t have to wait until filing their taxes to receive a reinbursement. Given that April 15 is right around the corner, however, this is probably less of an issue for those that take advantage of the program in the coming months. As an aside, it’s important to check with an accountant/tax-preparer to confirm your eligibility for receiving the credit, as the IRS has already identifief 20,000 caes of fraudulent/accidental claims by those who were ineligible.

In the short-term, there’s no question tha this tax credit will continue to provide support for the housing market. Many analysts have attributed the apparent stabilization of the housing market solely to this program. Given its expansion to include all but the wealthiest home-buyers and the removal of the requirement that it can only be claimed in association with a first-time home purchase, it will provide have an even greater impact in the months ahead. In fact, “The industry group is forecasting 5.69 million existing home sales in 2010, up from an anticipated 5.01 million this year. About 549,000 new-home sales are projected for next year, up from an estimated 397,000 this year,” a rise of nearly 15% from 2009 levels.

As for the long-term, that’s another story, altogether. ““Housing activity is likely to fall back once the tax credit finally expires, as some sales will have been brought forward from future months,” explains one analyst. Ideally, the economy will pick up during the interim, and cushion the fall after the program ends. In this way, the tax credit can be seen as nothing more than a giant bridge loan for the housing market.