Tax Credit Extension? Don’t Bet the House On It By Nick Timiraos Wall Street Journal 04-22-2010

Tax Credit Extension? Don’t Bet the House On It
By Nick Timiraos
The Wall Street Journal
April 22, 2010

The National Association of Realtors touted Thursday’s report that existing home sales rose by 6.8% in March as proof that the home buyer tax credit has been a “resounding success.” Indeed, home resales, which came in at a 5.35 million annual rate, exceeded analysts’ consensus expectations of a 5.25 million annual sales rate.

But there was another message embedded in Thursday’s report: Don’t count on any further extension of the home buyer tax credit, which expires at the end of April.

Congress initially passed a $7,500 tax credit for first-time home buyers two years ago. That credit had to be repaid over 15 years, and last spring, Congress extended the credit, expanded it to $8,000 and waived the repayment provisions. The extended credit had been set to expire in December 2009, and Congress extended it once more last fall. Also, a separate $6,500 tax credit was created for home buyers who already own a home.

To secure last fall’s extension, Sen. Johnny Isakson (R., Ga.), the godfather of the tax credit, nearly signed his name in blood to swear that Congress wouldn’t try to extend the credit again. Still, some industry folks had held out hope that in an election year, the tax credit might enjoy one last revival (Indeed, California’s legislature has created a separate $10,000 state tax credit).

But industry groups now say that the tax credit has run its course. “It’s time for the housing market to stand on its own two feet,” says a spokesman for the National Association of Realtors. A spokesman for the National Association of Home Builders says the group isn’t “actively asking for an extension at this time.”

Buyers who are close to a deal still have until next Friday to sign a contract to stay eligible for the credit. Contracts signed by April 30 have until the end of June to close.

Industry officials are optimistic that low mortgage rates, improved housing affordability and the continued availability of low down-payment mortgages from the Federal Housing Administration will be enough to keep buyers in the game during the second half of the year.

A House committee on Thursday voted down an amendment that would raise to 5% the minimum down payment required on FHA-backed loans; currently, those loans require a minimum 3.5% down payment. The committee will vote again on the amendment on Tuesday, but the measure appears unlikely to survive.

The expiration of the tax credit will represent the removal of the second major government support to the housing market in as many months. So far, the mortgage market hasn’t experienced any major hiccups from the conclusion last month of the Federal Reserve’s purchases of $1.25 trillion in mortgage-backed securities that held mortgage rates at around 5%.