By Brian Faler and Dawn Kopecki
Oct. 29 (Bloomberg) — The Obama administration endorsed plans to extend an $8,000 tax credit for first-time homebuyers, saying it is helping stabilize the nation’s housing market.
The tax break, enacted earlier this year as part of an economic stimulus package, has “brought new families into the housing market and contributed to three consecutive months of rising home prices,” Treasury Secretary Timothy Geithner said today in a statement. The tax break will expire Nov. 30 unless Congress intervenes.
Senate Democrats have announced plans to extend the credit until April 30 while expanding it to include higher-income Americans and some who already own homes.
Senate Finance Committee Chairman Max Baucus said today the new plan would offer a $6,500 credit for homebuyers who have lived in their prior residence for at least five years. Couples earning up to $225,000 and individuals up to $125,000 would qualify for the break, Baucus said. That’s up from the current $75,000 limit for individuals and $150,000 for couples.
“The success of the American economy is closely tied to the success of the housing market – by helping to stabilize the housing market, the homebuyer tax credit has helped to shore up the economy as it begins to recover,” said Baucus. “This would enable an even greater number of potential homebuyers to take the credit.” Millions of renters earn more than $75,000, he said.
Democrats have been pushing to include the provisions in an unemployment benefits bill, which has been held up by a disagreement with Republicans over other proposed amendments.
Worst Price Drop
Lawmakers said they want to prevent home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression. More than 1.2 million borrowers have claimed $8.5 billion of the $13.6 billion set aside for the homebuyer tax credits this year, according to the Treasury Department.
The Democrats’ proposal would extend the credit to home purchases under contract by April 30 so long as they close the sale within 60 days. Those buying homes worth more than $800,000 wouldn’t be eligible for the credit, said Baucus.
“We need to target the credit toward those potential home buyers who need it most, and not those home buyers who would have bought the new home without the new credit,” said Baucus.
Any legislation would have to be reconciled with a House unemployment measure approved last month that omits the homebuyer tax provisions and extends jobless benefits only in states with the highest unemployment rates. House Speaker Nancy Pelosi, a California Democrat, is waiting to see the final Senate agreement before deciding whether to support it, said spokesman Nadeam Elshami.
While the tax credit speeds demand for homes from next year to this year, it won’t necessarily increase overall sales, said Scott Buchta, head of investment strategy at Guggenheim Securities LLC in Chicago.
“They do need to expand the credit to get more people involved, but at the end of the day you are paying people tax dollars to do what they probably would have done anyway,” Buchta said. “If it is passed, home sales of lower-priced homes should continue to hold their ground. However, if it is not passed we will probably see home sales slow down as we wait for natural demand to build up again.”
Senate Majority Leader Harry Reid, a Nevada Democrat, said yesterday that there is significant support among both parties for the homebuyers’ tax credit. He said the other amendments sought by Republicans are unrelated to the unemployment bill and are designed to embarrass his colleagues. Republicans want to vote on amendments on immigration and to bar funding for the community activist group Acorn.
Senate Minority Leader Mitch McConnell, a Kentucky Republican, agreed that most lawmakers support the unemployment and homebuyer measures. “We’re not that far away from an agreement,” he said yesterday.
The $2.4 billion unemployment measure would extend jobless benefits by 14 weeks in all states and provide an additional six weeks of benefits in states with the highest unemployment rates. About 1.9 million Americans will exhaust their unemployment benefits by the end of this year unless Congress acts, the Labor Department said.