Congress Extends Buyer Credit Through April

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The House and Senate passed an extension to the home buyer credit, which would allow first-time buyers to continue to receive an $8,000 credit, and would also extend a $6,500 "trading up" credit to current home owners.

Both credits will apply to valid contracts signed by April 30, 2010 and closed by July 1.

The move-up credit does not begin until Dec. 1, so anyone buying a house in November will actually have an incentive to wait until 12/1.

But the impact of the extension of the first time buyer credit is likely to be muted.

Economists at Goldman Sachs estimate that an incremental 200,000 sales occurred between February and November of 2009 because of the credit. Since the credit was due to expire, most of the would-be buyers would have tried to get their purchases completed by the deadline.

How many renters will now decide to buy because they have until next April, assuming the credit isn't extended again? The simple extension "should result in fewer incremental first time purchases than the first round of the credit did," writes Goldman economist Alec Phillips.

It seems unlikely that more than another 100,000 potential buyers will come out of the woodwork now and buy because the credit has been extended for a five months, and it could be even less than that.

On the "trading up" side, Goldman Sachs estimates as many as 70 percent of owners will be eligible. But the $6,500 credit would amount to just two percent of the purchase price of a $325,000 home.

While the extension of this credit may do wonders for consumer confidence and the stock prices of home builders like Toll Brothers and Lennar, the impact will most likely be modest.

At least one would-be buyer said that the tax credit's extension will only moderately increase the likelihood that she will buy next spring.

Maureen Pratt, an Old Town Alexandria resident, had decided there wouldn't be enough time for her to take advantage of the credit this fall, so the extension may make her reconsider.

"An extension would definitely make me look more closely at real estate, but, for the D.C. area, it's hard to see any 'cooling effect' in housing prices as compared to other parts of the country," says Pratt. "Also, it seems like rent is now down so that is a factor for me."

Pratt said that friends in other housing markets such as Phoenix are more enthusiastic about buying since prices have fallen so dramatically.

Even the bills sponsor, Sen. Johnny Isakson, says this is probably it for home buyer credits.

While the bill was unopposed, Sen. Kit Bond, R-Mo., questioned it's efficiency: "[F]or the small minority of buyers whose decision was directly caused by the credit, this raises the question of whether we are subsidizing buyers who may not have been able to afford buying a home in the first place."

HOMEBUYER TAX CREDIT: REVISED NOVEMEBER 2009

FEATURE

Jan 1 – November 30, 2009 Rules as enacted

February 2009

December 1 – April 30, 2010 Rules as enacted

November 2009

First-time Buyer:

Amount of Credit

$8000

($4000 married

filing separate)

$8000

($4000 married

filing separate)

First-time Buyer: Definition for Eligibility

May not have had an interest in a principal residence for 3 years prior to purchase

Same

Current Homeowner: Amount of Credit

No Provision

$6500

($3250 married

filing separate)

Effective Date:

Current Owner

No Provision

Date of Enactment

Current Homeowner: Definition for Eligibility

No Provision

Must have used the home sold or being sold as a principal residence consecutively for 5 of the previous 8 years

Termination of Credit

Purchases after November 30, 2009.

(Becomes April 30, 2010 on Date of Enactment.)

Purchases after

April 30, 2010

Binding Contract Rule

None

So long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until

July 1, 2010 to close.

Income Limits

(Note:Increased income limits are effective as of date of enactment of bill)

$75,000 – single

$150,000 – married

Additional $20,000 phase out

$125,000 – single

$225,000 – married

Additional $20,000 phase out

Limitation on Cost of Purchased Home

None

$800,000

Effective Date of Enactment

Purchase by a Dependent

No Provision

Ineligible

Effective Date of Enactment

Anti-fraud Rule

None

Purchaser must attach documentation of purchase to tax return

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