Contrary to what many have reported, it’s not a done deal yet.
The most talked about real estate news of the past week seemed to be all about the First Time Homebuyer Tax Credit getting extended.
I’ve had numerous people contact me asking for the details and have had to tell all of them that nothing has passed yet.
Given the confusion and misinformation I thought I’d give an actual update on where the extension is.
The big news is that an unofficial voice vote passed the Senate last week, and Senate Majority Leader Harry Reid announced that he’s planning an official November 2nd vote on the extension in the Senate. Discussions with his counterparts in the House lead him to believe that the House will also pass the bill in the coming week.
This could put the bill on President Obama’s desk by the end of the week.
What could go wrong? Well, the vote was held up last week by demands for votes on several other amendments, one calling for an end to the Treasury’s TARP program by year end. An extension of unemployment benefits is also rumored to be causing issues. Popular bills like this one often have other amendments added to them that might not pass otherwise, so a lot of compromising goes on.
Some New Wrinkles
In its current form, the bill would extend the tax credit to the end of April 2010. There are several proposed differences from the current tax credit:
- To qualify, a sales contract would have to be signed by April 30th and the transaction closed by June 30.
- Income limits would be increased from $75k for single people & $150k for couples, to $125k and $225k respectively.
- Buyers who have lived in their current home for the last 5 years would be eligible for up to a $6500 tax credit (or 10% of the purchase price).
- The maximum allowed home purchase price would be capped at $800,000.
- Military personnel, deployed overseas for a minimum of 90 days in 2008 or 2009, would have until April 30, 2011 to claim the tax credit.
- To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.
Stabilizing the Housing Market
The Homebuyers Tax Credit is probably the best program passed by the government since the financial meltdown started. Other measures to stabilize the economy are increasingly under fire for racking up trillions in tax payer debt, while mostly benefiting the elite on Wall Street.
More than 1.25 million taxpayers have taken advantage of the tax credit to pursue the American dream of home ownership. This has used up approximately $8.5 billion of the $13.6 billion originally set aside for the program.
Reports show home sales have increased and inventory is down. Many buyers are finding it difficult to locate a home, being outbid and outhustled.
Even this program has its problems and detractors though. Recently, the Treasury’s Inspector General for Tax Administration, J. Russell George, told Congress that at least 19,000 filing for the credit hadn’t bought a house when they filed. Another 74,000 appear to have owned a home in the last 3 years, making them ineligible for the program. 500 plus filers for the tax credit are under 18 years old!
The IRS is pursuing criminal cases against at least 100 offenders and is reportedly trying to audit every return where the credit is claimed this year. They’ll also be auditing themselves as Mr. George is also on record stating that they are investigating at least 53 cases of IRS employees filing illegal or inappropriate claims for the tax credit.
Many detractors are claiming that the tax credit is subsidizing housing values and just pulling forward sales that would have happened anyways.
One potential problem that the media hasn’t focused on yet, is that the tax credit may be encouraging banks to sit on foreclosed homes. Many real estate experts have pointed out that the number of foreclosures has been outpacing the number of units entering the market for some time now. Instead of putting these homes on the market to be sold, banks could be sitting on them to drive down inventory and push up prices – using bailout funds to support this endeavor. Not a lot that can be done at the “street level” about this, but surely something for our representatives to look into.
Hopefully, the extension of the tax credit won’t turn more buyers into procrastinators who wait until the last minute to buy. Buyers should keep in mind that finding a home isn’t like shopping for Christmas items or even a car – where there are multiple copies of the desired item.
Homes are much more unique, rarely are even two homes remotely alike. Start your search now, as it could take awhile to find what you want. When you do find it, jump on it or someone else usually will.