$8,000 Tax Credit: New Deal?

(MoneyWatch)  According to news reports this morning, Senate negotiators reached a tentative deal on extending and slightly expanding the $8,000 first-time home buyer tax credit.

Here's the tax credit new deal Senate negotiators apparently reached:

• The current $8,000 first time home buyer tax credit would be extended for contracts that are finalized by April 30, 2010 and close by June 30, 2010. This is supposed to help Realtors and mortgage lenders get through the supposed "slow" Winter selling season. In reality, while traffic is down, the housing sales numbers in the winter aren't all that different from summer and fall. But by allowing the tax credit to continue until June 30, you're also allowing those who buy next Spring to take advantage of the tax credit - and we'll have to read the fine print to know what the Senators mean by the "finalizing" date.
• A new $6,500 tax credit will be available to some existing homeowners who lived in a home for a "consecutive" 5 years out of the past 8 years. This part of the tax credit seems to be designed to help out those who have had to move out of their long-time primary residence to take a job elsewhere and rented out the property because they couldn't sell it.
• The income limits will be raised, so both tax credits will be available to those individuals earning up to $125,000, or up to $225,000 for married couples. The current tax credit limits first-time borrowers to an income of $75,000 for individuals and $150,000 for married couples, and phases out above those levels.

So what's really going on? Yesterday's perfectly awful and surprising housing numbers finally tilted the axis toward extending and expanding the credit. The Commerce Department reported that new home sales fell an unexpected 3.6 percent to an average annual pace of 402,000 sales. Economists and industry observers had been expecting sales to rise 5 percent.

Realtors, mortgage lenders and home builders said that the fall in home sales would mirror what would happen if the tax credit wasn't extended - countering HUD secretary Shaun Donovan's contention that nothing bad would happen if the tax credit was allowed to expire on schedule. They point to last month's housing numbers as a sign of things to come if the tax credit died on November 30.

My email and blog comments have been running mostly in favor of extending and expanding the tax credit. Clearly, the real estate professionals are all for it. The only activity they've really seen this year has been from first-time buyers. Every sale that closes means a commission in their pockets in a year where commissions are few and far between - and that helps pay their mortgages and bills.

But there is a strong undercurrent of resentment from Realtors as well as taxpayers who don't want to add another dollar to the Federal deficit - let alone $17 billion or more. (By the way, the Republicans and Democrats are in favor of spending this money, folks. It's a completely bipartisan new deal.)

The last bit of wrangling on the tax credit is how to bring it to the floor. As I've been saying, I think we'll see it added to legislation to extend federal unemployment insurance benefits, the Unemployment Compensation Extension Act (S.1699).
As Bravo Network says, "Watch what happens."

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$8,000 Tax Credit Details: Update