Will the Homebuyer Tax Credit Be Extended (Again)?by Tim Manni
While there’s significant sentiment out in the market that the homebuyer tax credit will expire as planned on June 30 2010, we’ve begun to formulate the opinion that the credit will receive its second extension. We believe that there is a good chance that it will be extended, at least through the “spring homebuying season,” if not longer. Here’s Why:
Smart Move in an Election Year
Lawmakers, now more than ever, are looking for any successful mortgage and/or housing-related program that they can stand behind. Besides the Fed’s mortgage-backed securities (MBS) purchase program, the homebuyer tax credit has been touted by some as an extraordinary success.
As such, “success” can be claimed, providing the necessary political cover to advocate extending the program… especially since the simple fact is that it if doesn’t work — that is, if it’s not being utilized — that it costs nothing. Deficit issues and the concept of whether we’re rewarding those who might have bought anyway will take a back seat. Keeping home sales going promotes home price stability, and that makes for less-grumpy voters as election time rolls around.
“If you’re a senator, you know you’re coming up for election. Do you want Realtors and builders to say that they tried to promote homeownership, but you said no? It’s an easy thing to stand behind during an election year,” [said HSH VP Keith Gumbinger].
Low Rates + Tax Incentives = More Sales
Back in September we explained how it made sense that the tax credit would be extended (the first time) along with the Fed’s MBS purchase program:
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.
A lot has happened since September: The tax credit was both extended and expanded, yet, even though the MBS purchase program is slated to expire on March 31, 2010, Fannie and Freddie recently announced that they will begin to purchase bad and under-performing mortgage loans which should free up billions of dollars for lenders in the private market to buy new MBS as they become available. Essentially, Fannie and Freddie are taking over the Fed’s function in order to keep conforming rates low.
The homebuyer tax credit is an incentive to get potential buyers into the market. The Fed’s MBS purchase program (and soon to be Fannie and Freddie) 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 well before the other might really throw off any improving dynamic the market has. Furthermore, the Fed’s ongoing stance that markets are improving, but not entirely ready to branch out on their own, only further serves to bolster this theory.
Time is Running Out
In ten weeks (April 30) any homebuyer — whether first-time or repeat — must have their contract signed to take advantage of the credit. “The mortgage process usually takes anywhere between 45 and 60 days,” say HSH VP Keith Gumbinger. “So while it’s not quite crunch time, it’ll be here soon, especially if you’re still looking at houses. Would-be homebuyers should really begin getting the process started if they haven’t already.”
First-time buyers lack experience which could be another factor that serves to slow the process down. “The combination of lack of experience and a changing marketplace could definitely prolong the process,” explains Gumbinger. Buyers looking to purchase a short sale or foreclosed property will experience an even longer homebuying process.
Will the homebuyer tax credit get another extension?
Cast your vote: