Shaun Donovan, Secretary of the Department of Housing and Urban Development (HUD), told the Senate Banking Committee this morning that while extending the $8,000 tax credit is popular with lawmakers, Realtors, Home Builders, Mortgage Bankers, and the public, the White House recognizes that the cost is significant.
"I am mindful that these proposals can be very expensive, especially at a time of significant budget deficits," Donovan said.
The Administration announced this morning that President Obama was going to turn his attention to the enormous budget deficits and attempt to figure out how to get them paid down. Spending nearly $17 billion on an extension and expansion of the $8,000 tax credit wouldn't help.
Sen. Johnny Isakson (R-GA), who has single-handedly pushed for an extension and expansion of the $8,000 first-time home buyer tax credit since June, can't be happy about this latest development. Yesterday, he spoke to his colleagues, telling them:
"The current home buyer tax credit is set to expire on November 30, and we are approaching the worst three months of the year for the housing market. It is imperative that we retain the momentum we have gained as a result of the current credit [crisis] and go into the spring market with the increased consumer confidence necessary for establishing a viable market.The only real estate agent in the Senate, Sen. Isakson said "During my 33-year career in real estate, I experienced many challenges and difficult markets, but never anything like the current housing market in America. America's families have lost trillions of dollars in home equity as home values have fallen, and in some markets, continue to fall today."
He also said that failure to extend the popular tax credit would lead to "a dramatic and awful situation in the United States of America."
Today, Donovan disagreed. "I do not believe that a catastrophic decline would be the result of the end of the credit," Donovan said. In response to questions, he said that the administration would make a decision in the next few weeks after figuring out exactly how much the tax credit would cost.
(And more bad news for Sen. Isakson: The IRS announced that a significant portion of the 1 million home buyers who have filed for the tax credit may have done so fraudulently. They're looking at more than 100,000 cases of taxpayers who have misused the tax credit. I'll follow up on this in a separate post.)
Are we really talking about fewer homes being sold? I think fewer homes will be sold anyway next year, particularly if Treasury cuts back on buying housing-backed securities and interest rates rise.
The real question is when will the U.S. housing market try to stand on its own? If Congress passes an extension and expansion of the tax credit, the answer will be clear: Not yet.