Lawmakers Push For An Extension Of The $8000 First Time Homebuyers Tax Credit Into 2010 In Proposed Bill

Since earlier this year we’ve been talking a lot about the $8000 first time homebuyer tax credit that was passed as a part of the 2009 Economic Stimulus Package. The credit has been available for first time homebuyers since January 1st, and will continue to be available until November 30th. Now that the program is beginning to wind down, the rumblings about trying to get the program extended or modified have begun. A few months ago there was talk about the tax credit being increased to $15,000, but that never got off the ground.  Another bill that was introduced last month also never got out of committee.  So while there is interest in passing an extension, nothing has come to fruition yet.

Many Hope For An Extension Of The First Time Homebuyer Tax Credit

The National Association of Home Builders are saying that they’re already beginning to see new home purchases starting to drop since the program will soon be gone:

In order to create hundreds of thousands of badly needed jobs and move the economy to higher ground, the National Association of Home Builders (NAHB) today called on Congress to extend and expand the $8,000 first-time home buyer tax credit set to expire at the end of next month.

Testifying before the Senate Banking Committee, NAHB Chief Economist David Crowe warned that builders are reporting that business generated by entry-level buyers is already declining because it is now too late to complete a new home sale in time to take advantage of the tax credit.

To spur job growth, help reduce foreclosures and excess housing inventories and stabilize home values, NAHB is calling on Congress to extend the home buyer tax credit for an additional year through Nov. 30, 2010 and make it available to all purchasers of a principal residence.

The drop in business seen by home builders is real.  The number of building permits for new homes dropped significantly in September

Applications for home building permits, a gauge of future construction, fell in September by the largest amount in five months — a discouraging sign for the housing industry.

The decline, in part, reflected uncertainty about whether Congress will extend a tax credit for first-time homebuyers.

The applications for building permits fell 1.2 percent in September. That’s the biggest decline since a 2.5 percent drop in April and underscored worries that the fledgling housing revival could be derailed by rising unemployment, tighter bank lending standards and the expiration on Nov. 30 of the government’s $8,000 tax credit for first-time homebuyers.

Is The Tax Credit A Good Idea? Some Think It Won’t Make Much Of A Difference

Many in the building and real estate industries are clamoring for an extension of the credit, while others aren’t so sure that the cost of extending the program are worth it.

Housing Secretary Shaun Donovan said at a congressional hearing Tuesday that supporting the housing market “can be very expensive, especially at a time of significant budget deficits.”

The administration will make a recommendation on whether to extend the credit in the coming weeks, after studying data on tax filings from the Internal Revenue Service. While there would be some negative effects if it were allowed to expire, Donovan said, “I do not believe that a catastrophic decline would be the result.“

Some analysts and lawmakers are skeptical about extending the credit, arguing that most homebuyers who receive it would have decided to buy anyway. And soaring unemployment is likely to dull the impact of any extension, Mark Vitner, a senior economist with Wells Fargo Securities, wrote in a note to clients.

“Many of the most likely buyers targeted have already taken advantage of the program,” he wrote.

The Newest Tax Credit Bill Piggybacks On Unemployment Benefits

So there is clearly division as to whether the program should be extended.    Other bills to extend the credit and increase the amount it gives to homebuyers have already died a slow death in committee never to again see the light of day.    This week Congress is once again considering another plan that would extend the credit through June of 2010.  Whether this new one will make it out of the committees remains to be seen.

The latest Senate proposal would drop the requirement that the credit be available only to first-time buyers, broadening the reach of the program but also adding to its cost, estimated by congressional analysts at $16.7 billion.

The backers of that idea, Sens. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., chairman of the Senate’s banking committee, have suggested that their measure be attached to another pending bill aimed at throwing a lifeline to people hit by the recession, an extension of federal assistance to the millions in danger of exhausting unemployment insurance benefits.

….

The Isakson-Dodd proposal would extend the credit to June 30, 2010. It would also remove the first-time homebuyer requirement and raise the eligibility income limit to $150,000, or $300,000 for a couple. That’s double the current phase-out limits.

Provisions Of The New Proposed Homebuyer Tax Credit

So if this new bill that is piggybacking on an extension of unemployment benefits were passed, it would mean that the tax credit would be extended, and the new provisions would be:

• You would not need to be a first time homebuyer – that provision would be removed.
• It applies to homes purchased through June 30, 2010.
• You must keep the home for three years.
• The credit is refundable.
• The credit is for $8,000 or 10% of the home’s value, whichever is less.
• It phases out for incomes between $75,000 to $150,000 for single and $150,000 to $300,000 for couples.

So while it is still unsure as to whether this particular extension of the first time homebuyer tax credit will be passed, the momentum for an extension to be passed in some form is very real.  I would expect something to be passed at some point this  year.

UPDATE: A new bill has been “agreed to” by Senators, that would extend the credit and add a $6500 Tax Credit for current homeowners.  Details here.

What do you think?  Should the tax credit for homebuyers be expanded to all homebuyers, and extended until June of 2009?  Will the effect it has on our economy be worth it, or will it be just another large expenditure when we are already running huge deficits?  Let us know your thoughts in the comments!