Does the MBS Extention Signal the Same for the Homebuyer’s Tax Credit?
by Tim Manni
While there has been ample speculation over whether or not Congress will vote to extend the first-time homebuyer tax credit, yesterday’s announcement by the Federal Reserve to extend their purchases of mortgage-backed securities (MBS) until March 2010 has increased the chatter amongst us and others in the industry that the tax credit might just be extended until the end of March as well.
It Makes Sense
The $8,000 first-time homebuyer tax credit was an incentive to get potential buyers into the market. The Fed’s MBS purchase program makes those potential transactions more possible and affordable. The two programs have contributed to lower mortgage rates and provided a much-needed boost for home sales during an anemic housing market. For one to expire approximately four months before the other could really throw off the market’s improving dynamic. Furthermore, the Fed’s ongoing stance that markets are improving, but not quite ready to branch out on their own, only further serves to bolster this theory.
On the front page of this morning’s Wall Street Journal, HSH.com contributed two graphs that showcased the downward trend of conforming rates over the past year and how the Fed’s MBS purchase program served to make that happen:
Logistically speaking, we feel it would ultimately benefit the most people if Washington continued to run the two programs — which directly feed off one another — simultaneously and have them expire at the same time. Doing this would help to contribute to the smooth transition to a more private-led market the Fed is hoping for.
While there are certainly quite a few industries inside the real estate market that would love for the first-time tax credit to be both extended and expanded, if the $8,000 credit has any chance for expansion, it will likely involve only it’s duration, not its size or scope.
