Tax credit extension depends on fate of unemployment extension
Another tax credit extension to keep the moribund U.S. housing market from getting even worse was being considered by Congress. The deadline for real estate closings to qualify for a federal home buyer tax credit worth up to $8,000 is 11:59 p.m. Wednesday. The House voted Tuesday to extend the tax credit closing deadline to Sept. 30 for buyers who met the April 30 deadline to have a signed contract. But in the Senate the measure is part of a larger bill that also would extend unemployment insurance — a much harder sell. If the tax credit extension is not approved, thousands of potential home buyers will be left in the lurch.
Tax credit extension affects 180,000 deals
Stakes are high for the real estate industry as Congress fiddles with the tax credit extension. To be eligible, home buyers needed to have a contract in place by April 30. The tax credit closing deadline was originally June 30. But MarketWatch reports that the National Association of Realtors estimated about 180,000 buyers could kiss $8,000 goodbye if the original tax credit closing deadline is upheld. A big problem for buyers has been getting the mortgage approval on time as mortgage lenders work through a pipeline clogged with thousands of applications.
Home buyer tax credit bottleneck
When the contract signing deadline expired April 30, the last-minute home-buying rush overwhelmed the companies responsible for handling the sales, including mortgage lenders, appraisers, title insurers and real-estate brokers. The Wall Street Journal reports that the bottleneck has especially effected short sales, where a lender allows a home to sell for less than the amount owed. Unlike normal sales, where only two parties negotiate the price, short sales, resulting from the epidemic of foreclosures, are more time-consuming because they require all note-holders to agree on price. Realtors say the short sale bottleneck is even putting normal sales at risk.
Unemployment extension critical
Nearly 3 million taxpayers successfully claimed the home buyer tax credit through May 22 — totaling more than $21 billion — according to the Treasury Department. The Associated Press reports that Senate Democrats have combined the tax credit extension with an unemployment extension for laid-off workers whose benefits are being phased out to the tune of more than 200,000 a week. Democrats have been trying for weeks to pass the unemployment extension as part of a larger tax and spending package, but the bill died in the Senate last week. Republicans opposing the measure want to pay for the unemployment extension with unspent money from last year’s massive economic recovery package.
Extension won’t help U.S. housing market
The tax credit extension may help homebuyers waiting to close their deals, but it will have little to no effect on a U.S. housing market that appears to be withering on the vine. The home buyer tax credit was the catalyst that boosted existing home sales in April by 23 percent from a year earlier. New-home sales saw a 47.8 percent increase. But when the homebuyer tax credit expired at the end of April, home sales in May fell to the lowest levels since the Commerce Department began tracking home sales statistics in 1963.