First-Time Home Buyers in Limbo As Congress Weighs Credit Extension
By Kenneth R. Harney
Saturday, August 22, 2009
It’s one of the biggest unknowns bugging would-be buyers of houses and condos this summer: Will Congress let this year’s $8,000 tax credit for first-time buyers expire as scheduled 14 weeks from now? Or will the credit get a second life and be extended for another six to 12 months, taking pressure off buyers, realty agents and settlement companies?
That’s an especially urgent matter if you’re a buyer just starting to shop and you see entry-level prices bottoming out or rebounding in many local markets and you want to take advantage of the credit, which is more generous than last year’s in that it doesn’t have to be repaid. The tax-credit law requires buyers to close on their purchases — not just be under contract — no later than Nov. 30. This doesn’t leave a lot of leeway for people who haven’t yet decided on a house and who haven’t nailed down mortgage financing.
The whole process of negotiating offers, signing sales contracts, applying for a loan and completing the closing can easily extend for two months — or a lot longer if things get off track. Given the rapidly approaching deadline, what’s the likelihood that Congress will blow the whistle and allow at least a little extra time? Here’s a quick overview: Though Congress technically is on its summer break, most members of the Senate and House use part of the August recess to meet with and listen to constituents in their home districts.
This year, the two biggest housing trade groups — the 1.2 million-member National Association of Realtors and the National Association of Home Builders — are spending the month mounting unusually intense grass-roots lobbying campaigns to make the case for extending the credit, and maybe even expanding it. The effort is targeted first at the districts of members of the two tax-writing bodies, the House Ways and Means and Senate Finance committees, but is expected to cover most other members of Congress as well, according to officials of the two groups.
Delegations of home builders and realty brokers already have begun descending on district offices, delivering what Jerry Howard, president and chief executive of the builders association, calls “the hard economic facts.” They are the numbers of houses sold in each congressman’s district that are attributable to the tax credit; the economic ripple effects on local businesses, manufacturers and service industries; the number of new jobs and income generated; plus the additional tax revenue that all this activity will help produce for local governments.
On a national basis, according to economists at the National Association of Realtors, anywhere from 300,000 to 350,000 additional sales of houses will be stimulated this year by the credit. Each home sale generates about $63,000 in downstream “ripple effects” elsewhere in the economy, they say. That includes sales of furnishings, appliances, lawn mowers, landscaping and renovation materials, plus moving expenses.
If you accept the numbers — and some analysts consider them a stretch — this means the housing credit provides a powerful, immediate stimulus bang for the buck. Failure to extend what may be one of the most effective pieces of the Obama administration’s 2009 stimulus legislation would cost jobs, economic growth and tax revenues, the housing groups argue.
There are some early signs Congress may be getting their message. Bills already are pending in both houses to extend the credit for another year. Senate Majority Leader Harry M. Reid (D-Nev.), whose state has been among the worst hit by the housing bust, reportedly now favors an extension of the credit. He was quoted to that effect by the Las Vegas Sun on Aug. 5, adding, “It’s something we can get done.”
Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking, Housing and Urban Affairs Committee and in a tight race for reelection next year, is co-sponsor of a bill with Georgia Republican Johnny Isakson that would raise the credit amount to a maximum of $15,000. Meanwhile, the Realtors and the builders are pushing not only for extension of the credit, but for broadening it to cover all home purchases in 2010.
But can any of this happen before the Nov. 30 deadline? The key complicating factor here is Congress’s heavy load of higher-profile, pressing issues that will get attention before anything else in September and October. That includes health-care reform, climate change and energy, financial system regulatory reform and a new Consumer Financial Protection Agency, among others. On top of that, a tax-credit extension would cost billions in lost revenue — a big negative when the federal budget deficit is already wallowing in a record amount of red ink.
In the end, however, given the political economics of the housing credit, the odds favor some sort of extension, probably later rather than sooner. Don’t bank on a bigger credit, however, or on a broadening of the concept to cover all buyers next year.