Tax Credit Extension Still Un-Certain

This yesterday from DSNews ("new and up-to-date information for the Default Servicing Professional")

White House Won't Commit to Homebuyer Tax Credit; Economists Remain Split
10/07/2009 By: Adam Weinstein

As the clock winds down on the popular $8,000 tax credit for new homebuyers, the White House has remained mum on whether it will be extended, and analysts are at loggerheads over the credit’s impact on housing markets.

The tax benefit for first-time purchasers – an emergency measure that was approved as part of the federal government’s stimulus to the ailing residential housing sector – is set to expire on Nov. 30. But despite appeals by trade advocacy groups to extend the credit, the White House said this week that it hadn’t made a decision on the matter.

The credit “helped the economy” and led to “quite a bit of success,” White House Press Secretary Robert Gibbs told reporters Tuesday. To that he would only had that President Barack Obama was considering an extension of the credit as one of many possible proposals to stimulate economic output and employment.

But some economists say the credit’s effect on the beleaguered housing industry has been exaggerated. Paul Dales, a researcher at Capital Economics, said the policy’s expiration was unlikely to reverse the recent housing recovery. He took issue with a National Association of Realtors study that estimated the tax credit was directly responsible for 350,000 home sales since January – about half the national total sold in that time. In fact, the real figure was closer to 225,000 units, or roughly 30 percent of all sales, Dales said.

“Overall, the government’s initiatives have kick-started the housing market, but they do not explain all of the recovery,” he said. “If we are right in thinking that the tax credit accounts for around 30 percent of the increase in home sales, then around 70 percent must be due to other more longer-lasting factors, such as the plunge in housing valuations and the fall in mortgage rates to historically low levels.”

That hasn’t stopped mortgage and housing groups, like the NAR, from advocating that the credit stay in place. The National Association of Home Builders has gone even farther, lobbying to expand a longer term tax credit to all home buyers.

Congress is expected to begin work soon on a bill to extend the tax credit. Though the potential bill’s fate is unclear, inside sources have told reporters that the likeliest outcome, due to federal budget reservations, is a 6-month continuance of the policy.