Trade Associations, Economists Urge Extension of Tax Credit
September 24, 2009
Several trade associations and economists are pushing for the extension and expansion of the $8,000 tax credit for first-time home buyer.
While as many as 40 percent of all home buyers this year will qualify for the credit, it is on track to cost the government $15 billion. In the view of the real estate industry and some economists, all that money is well spent. They contend the credit is doing what it was meant to do, encouraging a recovery in the housing market that is gathering steam.
The real estate industry, including the American Land Title Association, National Association of Realtors and National Association of Home Builders want Congress to extend the credit at least through next summer. ALTA hopes to expand the program to $15,000 and to allow all buyers, not just those who have been out of the market for at least three years, to qualify.
ALTA sent a letter to Congress in June urging support to expand the credit.
"There's near total agreement among real estate related trade groups that the $15,000 unrestricted credit is the single greatest thing we could do to stimulate the housing market, and our ALTA members have already reported a surge in purchase transactions directly correlating to the tax credit," said Kurt Pfotenhauer, chief executive officer of ALTA. "To make this credit available to all home buyers regardless of income, could be one of the key answers to ebb the recession."
According to a survey conducted by ALTA, 46 percent of land title professionals believe they have seen an increase in purchase transactions associated with first-time home buyers since the $8,000 tax credit went into effect.
Mortgage applications for the week ending Sept. 18 jumped to their highest level since late May. The fear of the credit expiring, low mortgage rates, home prices and the return of confidence have all contributed to the spike in activity.
The National Association of Realtors estimates that about 350,000 sales this year would not have happened without the lure of the tax credit. Moody’s Economy.com used computer modeling to put the number at 400,000. The Internal Revenue Service said it has provided the credit to 1.4 million taxpayers so far.
Data compiled by Campbell Surveys of Washington, D.C., adds support to extend the credit past its Nov. 30 deadline.
"We're looking for one more year, to Nov. 30, 2010, and extending the $8,000 credit to all primary-home buyers," said economist Robert Dietz of the National Association of Home Builders.
Using transaction information obtained from real estate agents, Campbell Surveys found first-time buyers accounted for 32 percent of home sales before passage of the American Recovery and Reinvestment Act on Feb. 17, and 42 percent to 43 percent in ensuing months.
The government’s efforts to directly reward home buyers began more than a year ago with a $7,500 tax credit that had to be repaid over 15 years. The idea of expanding the tax credit to $15,000 first surfaced in the federal stimulus bill at the beginning of the year, passed the Senate but was dropped from the final version. The legislation has gained renewed attention since a noticeable uptick in purchase transactions driven by the $8,000 tax credit.
The sponsor of the original Senate bill, Johnny Isakson (R-Ga.) is back with a new bill that would give a maximum $15,000 credit to any buyer who stays in a home for at least two years.
“The problem now is not first-time buyers, it’s the move-up market — the guy transferred from Chicago to Atlanta who can’t sell his house,” said Isakson, a former real estate agent.
Isakson is also supporting another bill that would extend the current first-time homebuyer credit another six months. Others senators that introduced this bill include Benjamin Cardin (D-Md.), John Ensign (R-Nev.), Harry Reid (D-Nev.), and Debbie Stabenow (D-Mich.)
“The ripple effect has been profound, injecting tens of billions of dollars into our national, state and local economies to help stabilize communities and create jobs,” Cardin said. “But there is more to be done. While we look for additional ways to help the housing industry, a six-month extension is a fiscally responsible way to provide adequate time to nudge even more prospective home buyers off the sidelines and closer to owning their part of the American Dream.”
Mark Zandi, chief economist of Moody’s Economy.com, favors expanding the credit to all home buyers, even investors, into next summer. “The risks of not doing something like this are too great,” he said. “I don’t think the coast is clear.”
James Glassman of JPMorgan Chase echoed those views but said he favored continuing to restrict the credit to first-time buyers.