Congress Looking to Extend and Increase Tax Credit for Home Purchase

Although this is a National story it has a huge impact on local Alameda Real Estate and housing as a whole.

Congressional Lawmakers, the Real Estate industry and businesses are calling for increasing the credit's cap expansion and extending the timeline for its implementation. The tax credit for first-time home buyers that has helped spark home sales during the last three months nationally in an otherwise miserable real estate market.

Senator Johnny Isakson, R-Ga. authored and introduced a Senate Bill and with co-sponsored Senate Banking Committee Chairman Chris Dodd, D-Conn, to expand the tax credit to $15,000 for any home buyer regardless of income.

On the House side a bill to keep the $8,000 credit in place until June 2010 and expand it to all home buyers was introduced last month by Rep. Kenny Marchant, R-Texas. It also would provide a $3,000 credit to homeowners who refinance. A second bill in the House, introduced by Rep. Eddie Bernice Johnson, D-Texas, would extend the credit to all home buyers through 2010.

The goal is to get additional buyers into the market and current homeowners to trade-up. The parameters of the current tax credit does not allow singles earning more than $95,000 a year and couples who earn more than $170,000 to take advantage of the credit. Business leaders want the income caps eliminated to spur more sales..

The tax credit scheduled to expire December 1, 2009. A tax credit of up to $8,000 is available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before the deadline, but some business groups say the amount of the credit, now capped at $8,000, should be raised to $15,000 and applied to anyone who buys a home. The credit, introduced in July 2008, was expanded in February as part of the economic stimulus package.

According to the National Association of Realtors (NAR), first-time buyers account for 40% of home purchases, 5 percentage points higher than the historical average, .

The proposals may face strong opposition with growing criticism of government spending to rescue the economy and the widening budget deficit. Many economists believe that tax benefit is vital to continue the home buying trend and help stabilize prices.

Millions, Billion, Trillions . . .Oh My

Yesterday, the Senate passed as part of the stimulus bill a $15,000 tax credit if home shoppers buy within the next year. As that was going on, in a separately action, Treasury Secretary Timothy Geithner outlined plans for spending much of the $350 billion in financial bailout money recently cleared by Congress, and the Federal Reserve announced it would commit up to $1 trillion to make loans more widely available to consumers.

All these actions are suppose to get buyers off the fence to complete a purchase, free up the credit markets and make money available for mortgages. So here is what you need to know about all three actions.

The tax credit in the Senate's version of the plan sweetened the current $7,500 homebuyer tax credit provision (that is basically a loan), doubling it to $15,000 or 10% of the home's purchase price (whichever is lower) in Alameda every buyer would get the full credit with the current inventory. The big difference is this credit applies to all buyers - not just those purchasing their first homes.

Here are the bullet points of the Senate Plan:

• No income limit
• The credit does not have to be paid back
• The tax credit is also non-refundable, this means, if your tax obligation is less than the credit, you only receive an amount equal to your tax bill, no more
• The Senate credit is good for one year following its enactment
• No retroactive feature. Homebuyers who make purchases before the credit takes effect cannot claim it.
• Buyers must live in the home for two years or forfeit the credit.

The National Association of Realtors estimated the Senate measure will attract an additional one million buyers who would otherwise have remained on the sidelines. "Consumers will view the tax credit as they do lower home prices," said Lawrence Yun, NAR's chief economist. "And more people will qualify [for buying homes]."

My personal belief is the Senate version will not survive when they confer with the House and come up with a compromise plan.

The financial stability plan will include a comprehensive housing program that will provide $50 billion for foreclosure prevention programs. Secretary Geithner released details of the new financial stability plan, a successor to the much maligned Troubled Asset Relief Program (TARP). The main purpose of the new TARP Plan is to prevent more foreclosures, decrease interest rates and find a place for toxic mortgages. (The video is a little TARP humor)

To drive down mortgage rates, Geithner also alluded to a possible expansion of a $600 billion Federal Reserve program that purchases mortgage backed securities and debt issued by Fannie Mae, Freddie Mac and Ginnie Mae.

The final piece is a $1 trillion program aimed at stimulating lending to consumers and businesses. The program expands on a $200 billion to lend money to investors to purchase securities backed by debt such as credit cards and auto, student and small business loans. The goal is open up all credit.

It is way to early to know what the impact will be, especially since the Senate version of the tax credit still needs to survive its current form, but if all three programs move forward we could see buyers jump back in to buying mode. Exactly what the Obama administration wants. Till then we will have to wait and see what happens.