With less than three months left before it joins Cash for Clunkers in the ash bin of stimulus programs, will Congress act quickly enough to extend the first-time homebuyer tax credit another year?
Housing industry lobbyists are mounting an all-out last minute assault on the tax-writing committees of Congress to extend the $8,000 credit for buyers who have not owned a home within the past three years. Many experts believe the credit is a major reason for the consecutive four month rise home sales.
Unfortunately, it’s virtually certain that many buyers will run out of time to buy a home long before Congress gets around to extending the credit, since it takes twelve weeks for the average first-time buyer to find one and four to six weeks to close, and the key committees in the House and Senate have yet to consider extending the credit.
Making the issue more complicated is the lack of unity among the housing industry players. The two biggest industry groups, the Realtors and home builders, want more than an extension. They also want the credit expanded to include all four to five million homebuyers next year.
“We say — if (the credit) is working for first-time homebuyers, then why not for all buyers, with no income limitations? We would like to see the expiration date extended (beyond Nov. 30). Expanding the credit is really the way to stabilize the (housing) market — by making it available to everybody,” NAR’s Mary Trupo told columnist Ken Harney recently.
Several members of Congress, notably Jonny Isakson (R-Fla.), want it increased to $15,000 and expanded to include all buyers. The Isakson amendment would have cost an estimated $33 billion and died in conference committee last February because of its cost and the houses compromised at $8,000-at a cost of $4.6 billion.
The National Association of Home Builders also wants net operating loss (NOL) relief legislation that would help its members, especially its publicly held members, by eliminating the current $15 million cap on average annual gross receipts and allowing 2009 losses to be eligible for the expanded carry back.
NAR’s top lobbyist, Jerry Giovaniello, speaking recently at a meeting in Las Vegas, gave odds of “better than 50-50″ of getting Congress to extend tax credit past its December 1 deadline. As for expanding it, he told the Las Vegas Sun that it that it would cost the U.S. Treasury, and there would likely be demands that the money to make up the difference would come from within the real estate industry. And that could include eliminating the mortgage industry deduction, he said. The mortgage interest deduction allows homeowners to deduct the interest they pay each year on their mortgages, which can significantly lower the cost of homeownership to newer owners, who pay more interest than principal.
Senate Majority Leader Harry Reid (D-Nev.) is more optimistic about the extension outlook. In a conference call with reporters three weeks ago said “Congress has to extend the credit by the end of the year.” He was not so positive about expanding it. It’s worth noting that the Senate loved the tax credit earlier this year and passed the $15,000 version. The housing industry’s greatest hurdles were in the House last February and they may still be there. The House, however, controls tax policy.
A clog of major, high priority legislation faces Congress as it returns from
August recess: health-care reform, climate change and energy, financial system regulatory reform and a new Consumer Financial Protection Agency.
Then there is the growing unpopularity of stimulus plans. Many leading economists argue the homebuyers credit is nothing but a temporary prop to housing sales and it will leave no legacy just as the on-again, off-again Cash for Clunkers will probably leave no lasting mark on the auto industry. Taxpayers are concerned about costs and what they are getting for their billions and trillions. Public support for stimulus plans is waning. A USA Today poll in early August, for example, found adults evenly split on whether they stimulus package will make the economy better over the long term.
The most important measure of the credit’s impact, of course, will be economic. No doubt the significant increases in existing and new home sales are due in part to the credit, and as the credit’s demise nears, sales in the short term will rise. While those sales show the effectiveness of the credit to move inventory, they also suggest sales will retreat and inventories will grow whenever the credit ends, whether this year or next.
As we get ready for the final rush to judgment, bet on the credit being extended for another year, not extended, but expect Congress to act too late to prevent a break of several months in the stream of first-time buyers.
By this time next year, when the credit comes up again for renewal, if the credit has done its job there may not be many first-timers left to stimulate.