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A house in Philadelphia that's under contract to be bought. One economist estimated that the $8,000 tax credit for first-time home buyers led to 400,000 new home sales this year that would not otherwise have taken place. (Matt Rourke / Associated Press / October 21, 2009) |
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Reporting from Los Angeles and Washington Alejandro Lazo -- Moving to shore up a still shaky economic recovery, the Senate unanimously agreed Wednesday to extend jobless benefits, continue the popular tax credit for first-time home buyers and offer a new tax break to homeowners who want to move up.
The existing tax credit for first-time buyers, set to expire at the end of the month, has helped boost home sales across the country. Under the Senate bill, both first-timers and existing homeowners would be able to take advantage of the expanded program through the end of April.
The measure would continue giving an $8,000 tax credit to first-time buyers and would provide a $6,500 tax break to qualified homeowners looking to move up to middle-market homes that cost no more than $800,000.
In addition, the legislation would raise the qualifying income levels to $125,000 for individual income tax filers and to $225,000 for joint filers.
Finally, the bill, which the House is expected to pass as early as today, would extend unemployment benefits 14 more weeks nationwide and 20 more weeks in California and other hard-hit states. That would give the long-term unemployed nearly two years' worth of benefits.
The enhanced home-buyer tax credit could particularly help Southern California, where sales of entry-level houses have been brisk but where the move-up market has continued to suffer.
"Would this create another incentive for buyers? Sure," said Andrew LePage, an analyst with San Diego research firm MDA DataQuick. "But a lot is going to depend on how many cheap foreclosures come on the market and what interest rates do."
Price, the availability of low-cost financing and the direction of the economy are likely to play bigger roles in whether homeowners can move up to houses costing more than $300,000, he said. And many would-be sellers in that middle market are sitting out, waiting for their home values to rise again.
Despite criticism that the expanded tax credit wouldn't be very effective, the legislation has strong support in Washington, and President Obama is expected to sign it as soon as it crosses his desk.
The current home-buyer tax credit, along with lower mortgage rates and cheaper home prices, has led to a rush by first-time buyers to close purchases before it expires.
"I have never seen an October, or an early November, with this level of activity," said David Emerson, a real estate agent in Lakewood.
LePage estimated that more than a third of homes sold in Southern California in September were bought by first-time buyers -- many looking to snap up cheap foreclosed properties now owned by banks.
Sales of homes in the move-up market constituted 39% of the market in September, a steep drop from the 65.7% share two years earlier, according to MDA DataQuick.
For homeowners looking to move up, the legislation would require that they have lived in their current house for five consecutive years out of the last eight.
And those with incomes slightly over the maximum limits -- up to $145,000 for individual filers or up to $245,000 for joint filers -- would get a smaller credit that decreases as income rises.
"Every economist will tell you we have to steady the housing market before the economy will turn around," said Sen. Christopher J. Dodd (D-Conn.). "We can't afford to let this tax credit expire now."
Though there are more effective forms of economic stimulus, the housing tax credit is worth extending and expanding because it directly addresses the housing market, said Mark Zandi, chief economist at Moody's Economy.com.
He estimated that the existing tax credit has added 400,000 new home sales this year that would not otherwise have taken place. That's nearly 7% of about 6 million in total sales.
"From a macro-economic perspective, nothing is more important than stabilizing housing values," Zandi said.
But some economists and housing experts doubt that the existing credit is truly boosting sales in a significant way. They also question whether opening the credit to families earning as much as $245,000 is the best use of the $11 billion the expanded program would cost.
The existing tax credit for first-time buyers, set to expire at the end of the month, has helped boost home sales across the country. Under the Senate bill, both first-timers and existing homeowners would be able to take advantage of the expanded program through the end of April.
The measure would continue giving an $8,000 tax credit to first-time buyers and would provide a $6,500 tax break to qualified homeowners looking to move up to middle-market homes that cost no more than $800,000.
In addition, the legislation would raise the qualifying income levels to $125,000 for individual income tax filers and to $225,000 for joint filers.
Finally, the bill, which the House is expected to pass as early as today, would extend unemployment benefits 14 more weeks nationwide and 20 more weeks in California and other hard-hit states. That would give the long-term unemployed nearly two years' worth of benefits.
The enhanced home-buyer tax credit could particularly help Southern California, where sales of entry-level houses have been brisk but where the move-up market has continued to suffer.
"Would this create another incentive for buyers? Sure," said Andrew LePage, an analyst with San Diego research firm MDA DataQuick. "But a lot is going to depend on how many cheap foreclosures come on the market and what interest rates do."
Price, the availability of low-cost financing and the direction of the economy are likely to play bigger roles in whether homeowners can move up to houses costing more than $300,000, he said. And many would-be sellers in that middle market are sitting out, waiting for their home values to rise again.
Despite criticism that the expanded tax credit wouldn't be very effective, the legislation has strong support in Washington, and President Obama is expected to sign it as soon as it crosses his desk.
The current home-buyer tax credit, along with lower mortgage rates and cheaper home prices, has led to a rush by first-time buyers to close purchases before it expires.
"I have never seen an October, or an early November, with this level of activity," said David Emerson, a real estate agent in Lakewood.
LePage estimated that more than a third of homes sold in Southern California in September were bought by first-time buyers -- many looking to snap up cheap foreclosed properties now owned by banks.
Sales of homes in the move-up market constituted 39% of the market in September, a steep drop from the 65.7% share two years earlier, according to MDA DataQuick.
For homeowners looking to move up, the legislation would require that they have lived in their current house for five consecutive years out of the last eight.
And those with incomes slightly over the maximum limits -- up to $145,000 for individual filers or up to $245,000 for joint filers -- would get a smaller credit that decreases as income rises.
"Every economist will tell you we have to steady the housing market before the economy will turn around," said Sen. Christopher J. Dodd (D-Conn.). "We can't afford to let this tax credit expire now."
Though there are more effective forms of economic stimulus, the housing tax credit is worth extending and expanding because it directly addresses the housing market, said Mark Zandi, chief economist at Moody's Economy.com.
He estimated that the existing tax credit has added 400,000 new home sales this year that would not otherwise have taken place. That's nearly 7% of about 6 million in total sales.
"From a macro-economic perspective, nothing is more important than stabilizing housing values," Zandi said.
But some economists and housing experts doubt that the existing credit is truly boosting sales in a significant way. They also question whether opening the credit to families earning as much as $245,000 is the best use of the $11 billion the expanded program would cost.
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