"First-time home buyer tax credit set to expire
Robert Selna, Chronicle Staff Writer
Wednesday, September 30, 2009
(09-29) 20:28 PDT -- The $8,000 federal tax credit for first-time home buyers is soon to expire, causing anxious house hunters to hustle and prompting a debate in Congress over extending a program that some say is central to the fragile real estate recovery.
The rebate is available to anyone who has not owned a home in the past three years. The government introduced the program in February as part of the stimulus package, and several studies estimate that by the Nov. 30 expiration date, it will have spurred several hundred thousand home sales.
The real estate industry in California and across the nation is lobbying Congress to extend the credit through next summer. Meanwhile, local Realtors and prospective buyers are eager to complete sales - which sometimes take months - not knowing whether the credit will be continued.
"The refund has had a tremendously positive impact," said James Liptak, president of the California Association of Realtors. "Home prices are down considerably, and one of the big things that has made people jump into the market is the credit."
Critics argue that American taxpayers are simply footing a windfall for purchasers who would have bought homes anyway. Real estate industry statistics suggest that approximately 1.8 million people are expected to receive the credit. They also indicate that the rebate spurred 350,000 home sales.
"That means that about 85 percent of the people who got the credit were already going to buy homes," said Ted Gayer, a Brookings Institution economist who focuses on housing and public finance. "The idea of a subsidy is to get people to change their behavior. This subsidy costs a lot of money and is only getting small number of people to change their behavior."
New homeowners Nicole Kitchen and her husband, Jared, said the tax rebate was a significant factor in pushing them to buy their Martinez house this summer. The credit allowed them to purchase a new washer, dryer, refrigerator, stove, television, two couches and other furniture.
The couple amended their 2008 taxes and received the benefit almost immediately.
"We would have had to pay for the new things with a credit card or put a smaller payment down on the house," said Nicole Kitchen, a 31-year-old teacher in Martinez. "This is a great way to boost the economy."
The Kitchens had additional motivation for buying a house, including the fact that the couple's first child was nearly a year old, interest rates were low and prices had fallen dramatically from years past.
Members of the House and the Senate have proposed more than 20 bills to extend and/or expand the credit.
A proposal by Rep. Ken Calvert, R-Corona (Riverside County), mirrors a bill sponsored by Sen. Johnny Isakson, R-Ga. The lawmakers want to offer the tax credit for another year, increase it to $15,000 and make it available to any buyer who stays in a home for at least two years.
Gayer from Brookings estimates that such a program could cost $30 billion. As it stands, the government is on track to spend $15 billion.
"California needs to stimulate demand; there's a lot of inventory out there and increasing the program to $15,000 could help (decrease) some of that supply," said Calvert's spokeswoman, Rebecca Rudman.
Others agree. They say that extending the tax incentive program is worthwhile given the importance of the housing market to the overall economy and the relatively small cost of the credit.
The housing market is unpredictable. It slumped in August after four months of gains. Nationally, sales of existing (not new) homes dropped 2.7 percent. The Bay Area saw a 15 percent decline.
Additional foreclosures also are on the horizon. In 2010, many option adjustable rate mortgages, which were popular in the Bay Area, will begin to readjust. When they do, borrowers will be hit with much higher monthly mortgage bills, possibly triggering the next big wave of foreclosures.
"The economy is trying to gain traction and the housing market is a big piece of that," said Mark Zandi, chief economist at Moody's Economy.com. "We are likely to have a lot of foreclosures next year, so it's good to give everyone who wants to buy a chance to buy."
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