We should be calling on Congress to extend the $6500 federal income tax credit for Repeat Home Buyers.
The Washington Post reports the $8000 tax credit for First-Time Home Buyers helped an otherwise sagging market for home sales in 2009. But sales have decreased by 23 per cent since that tax credit's original expiration date in November.
The Post cites an economist for Fanny Mae as believing that the $6500 tax credit for Repeat Home Buyers may not be large enough to really boost sales activity. Another economist from IHS Global Insight says the repeat buyer tax credit "appears to be having a minimal effect".
A recently released Fanny Mae report says the original $8000 tax credit may have "dried up" the pool of qualified first-time buyers.
All of this suggest that Congress's reaction to the fall in existing home sales reported by NAR should be to:
1) Let the $8000 first-time buyer tax credit expire as scheduled on April 30.
2) Extend the repeat buyer tax credit through April of 2011 and
3) Increase that credit from $6500 to $8000.
The first should be easy. Congress need do nothing. Senator Johnny Isakson (R-Ga) who authored the original tax credit (and the November extension) promised his colleagues he would not ask for an extension of that credit.
The second should be nearly as easy. The reasons for extension of the second tax credit are simple:
You can't expect much impact when you create a new credit while a similar credit is still continuing. Confusion will abound. The public will not be able to sort out the rules of the two possibilities.
But the authors of the Repeat Buyer Tax Credit should not have expected much impact for another, quite obvious reason:
Five-and-a-half months is just too short a period for a tax-credit fashioned like this one to actually have any chance of working.
For a Repeat Buyer Tax Credit to have real impact, huge numbers of homeowners have to hear about it during its first few weeks. They have to put their existing home on the market, get it completely sold and closed in a rough market (for demand and financing) and find a new home to purchase.
That's especially not likely to happen when the first few weeks that the new tax credit is in force happen to be the Thanksgiving to New Years holiday season. A lot of REALTORS didn't even have it figured out until the new year was underway!
Yes, some Repeat Home Buyers are taking advantage of the credit without having to sell-in-order-to-buy. But overwhelmingly they would have been buyers anyway.
The real, hoped for impact of the Repeat Buyer Tax Credit really needed to come from those who had a home to sell first. That simply isn't happening in large enough numbers.
That's among the factors prompting Fanny Mae to lower its projections for increased home sales this year from 12 per cent down to to 9%. It's marginal changes in total sales that set the tone for trends in prices.
The impact of the First-Time Buyer Tax Credit has been mostly focused on homes below the price/square-footage medians. It has helped reduce the inventory and stem the price slide for smaller homes. It has not given much relief for larger homes.
The Repeat Buyer Tax Credit has potential to boost sales of those larger homes both in number of sales and price. That's why it should be extended ...and increased to $8000 to attract more attention.
Remember, the FED will move to higher interest rates later this year. Remember interest rate resets are expected to drive a new wave of foreclosures as the year wears on.
We are going to need all the help we can get.
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Jim Hale
Principal Broker / Owner
Graduate, REALTOR Institute e-PRO
2012 Member, Million Dollar Club of Lane County
2012 Member, Real Estate Brokers Million Dollar Club
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