Discussions have been underway in recent days between the White House and Congressional leaders about extending the $8000 first-time homebuyer tax credit. Congressional aides have told The New York Times, it is “high among options for further stimulating the economy and creating jobs.”
Senate Majority Leader, Harry Reid, D-NV, facing a tough re-election race next year in a state that has been hard hit by the housing crisis, issued a statement about the proposal after a recent White House meeting. According to The Times, he said that the government should “continue efforts to strengthen the housing market by extending the home-buyer tax credit.”
AS reported by Bloomberg, Speaker Nancy Pelosi, D-CA told reporters after the same meeting that, “Extending the tax credit for homebuyers is under consideration. The question is, would that be just first-time homeowners or would you open it up to other purchasers of homes?”
Although extending and expanding the tax credit is a priority for Democratic leaders in Congress, the White House has been lukewarm at best about extending the credit and is opposed to increasing it, on budgetary concerns.
The following is excerpted from The Times story:
By the time it is scheduled to expire, for home purchases that close before Dec. 1, the home-buyers credit will be responsible for nearly 400,000 sales of new and existing homes, out of total sales of 1.4 million, said Mark Zandi, chief economist at Moody’s Economy.com. That is roughly in line with estimates from the National Association of Realtors.
Mr. Zandi, who formerly advised Senator John McCain, Republican of Arizona, and is now consulted by Democrats in the administration and in Congress, has advocated extending the credit through next August and making it available to all home buyers.
Allowing the credit to expire this year would result in a decline in sales of homes that are not facing foreclosure just as sales of foreclosed homes are expected to pick up, Mr. Zandi said in an interview, “putting further downward pressure on house prices.”
“The economic recovery will not evolve into a self-sustaining economic expansion and risks unraveling back into recession until house prices stop falling,” he added.
But the tax break is not cheap. Congressional analysts put the cost in lost tax revenues at about $1 billion a month. Mr. Zandi said that expanding the availability of the credit to more home buyers through August would cost perhaps $30 billion. While some in the housing industry have proposed nearly doubling the credit to $15,000, Mr. Zandi said $8,000 “seems to have been a sufficiently powerful incentive.”
Congress, suffering from “bailout fatigue,” is unlikely to increase the tax credit beyond the current $8000 limit, observers say, despite pressures to do so from the real estate industry.
For further details, see the excellent FAQ pages by the National Association of Home Builders (NAHB).