Senate Likely to Extend $8,000 Home-Buyer Tax Credit

Senate Majority Leader Harry Reid has proposed a new version of a popular home-buyer tax-credit extension. Folks close to the matter claim a vote on the proposal is coming shortly.

Another recent Senate alternative would continue the $8,000 credit for four months and then gradually phase it out after that. Current law has the credit expiring at the end of November.

The value of the credit would drop by $2,000 every quarter until it halted completely by the end of 2010.

The National Association of Realtors supports the extension of the credit though at least the first two quarters of 2010 to assure that recent new home sales is firmly on a recovery track. They claim that home-buying activity in that six-month period could be crucial for new stability in the housing market again.

On the contrary, the Reid proposal wouldn't be nearly as effective at stimulating home sales, Mr. Salvant said, because it would start winding down during the second quarter.

The debate comes as a Treasury auditor revealed this week that the Internal Revenue Service improperly issued millions of refunds related to the credit.

At a House panel hearing this week, an IRS official said it is reviewing 100,000 returns to determine if credits were paid appropriately. Given the popularity of the credit, however, experts say the allegations are unlikely to derail the push to extend it in some form.

Spurred on by the credit home sales have been recovering nicely in the past six months. On Friday home sales were report to jump significantly in September. Existing home sales rose 9.4 percent. The West was the strongest region, up 13.0 percent. In an extremely encouraging sign, supply on the market fell back sharply -- down 7.5 percent in the month. Supply is now at its lowest level in 2-1/2 years.

Q3 earnings continue to impress, major firms are surprising to the upside, and markets are continuing their break-neck bounce. With second half growth coming on strong, an extension of the tax credit can mean nothing but good news for the 2010 housing market.

Comments

[fwi:]

There is no housing "market" if the Feds have convinced a $150,000 or under household that $8000 will make buying a house with all of its attendant responsibilities a good, rational decision at this particular time. For this income level, one thing, such as needing a new roof, a new furnace, perhaps the basement floods, could wreck the monthly budget, send the owner into debt, uncertainty, and probably missed or late payments. The sudden loss of a job, could mean default. And probably would.

This so called "free" money will end up costing the taxpayer, whether in his income tax or sales tax or maybe even a VAT, a great deal more than $8000. Extend the idea that "free government money" will force people to buy things which will "help" the economy. THen why stop at housing? Why not $8000 for electronic equipment? Services rendered (SEIU approved, of course)? Clothing?

The point that I am trying to make is that if the value in the good is not sufficient unto itself, if the decision to not buy it is rational, then fake government money should not invalidate that economic decision. When housing is cheap enough to warrant organic demand, then that is where prices ought to be. Not some bureaucrat's model of where prices ought to be.

Government does not understand the variability of the marketplace. It deals and acts by fiat--some lawful, and some recently not so lawful. To continue this artificial pumping of the real estate market is only going to destroy true price discovery, and will entice the wrong buyers into this scheme. I find this government scheme even more shameful than the worst mortgage broker. The government is making people believe that they can afford houses--and maintain them-- all for the pittance of $8000. This is a travesty, and the fact that NAR is behind this, is really sad.

Oct 26 08:31 PM

[William M. ...:]

"At a House panel hearing this week, an IRS official said it is reviewing 100,000 returns to determine if credits were paid appropriately" Another well intended government program gets scamed. Frankly when you consider all the time and effort that went into debating this and Cash-for-Clunkers and TARP and AIG and Management Salaries & Bs...we could have saved a ton of expensive time and money if the government would have just mailed every taxpayer (a person who actual pays federal taxes) a 10% refund on what we paid in 2008 with a required promise to spent the money.

Oct 26 11:38 PM

[dingding:]

That's right, keep popping up the markets with tax payer money by making people buy houses they cannot afford.

Oct 27 01:00 AM