Want a bigger home? A new tax-credit proposal may help you afford one. (Photo: iStockphoto)
The Senate appears to have sifted through the myriad proposals to extend the First-Time Homebuyer Tax Credit and draft a program that will include those who have owned their home for at least five years.
The Senate agreement is similar to an earlier proposal that was gaining traction. The final version calls to extend the $8,000 tax credit for first-time homebuyers for contracts signed from Dec. 1 through April 30, 2010. Buyers will have until July 1 to close.
The proposal allows for current homeowners to receive a tax credit, although it will be for a maximum of $6,500 and they have to have lived in their current residence for at least five years. Expanding the credit to current homeowners is likely an attempt to spur activity in the move-up market.
Although the entry-level market has seen significant activity, which the real estate industry attributes to the tax credit, the move-up markets have been lazy at best. The reason is that the vast majority of entry-level homes being purchased are bank foreclosures or bank-approved short sales and homes owned by people looking to get out of owning a home. Not many are selling to buy a more expensive property.
Many economists and the real estate industry are at odds over the impact of the tax credit. The National Association of Realtors claims the credit has resulted in 400,000 sales. More conservative estimates outside the industry put the number at about 200,000 because they say most of the people who bought a house would have done so without the credit.
The Senate proposal has bi-partisan support, although the House of Representatives has not weighed in. The current First-Time Homebuyers Tax Credit is set to expire Nov. 30, but supporters would like it passed and signed by President Barrack Obama as soon as possible.
Until it becomes a reality, some buyers may stay on the sideline because it would be difficult to purchase a home now and be able to close by Nov. 30 in case the program does not materialize.
Also unknown is how the proposal will be voted on. Senate Democrats want to attach it to an existing bill to extend unemployment benefits.
It will be interesting to see how many move-up buyers take advantage of the $6,500 credit, which is not a huge incentive. I guess it would be the same as having your closing costs covered, only by the government instead of the seller. I can’t see where that would be a driving force to move up in this market unless you were already considering the prospect.
Readers: Would the $6,500 credit spur you to sell your current residence and buy another property? —Rick Hazeltine