The first time homebuyer tax credit was again extended, this time until September 30th. The latest extension hopes to let those who were under contract by April 30th but unable to close by the June 30th deadline.
Many home sales exceeded the length of time buyers thought the purchase would take. Short sales comprised a decent share of the market, but these seemingly simple transactions actually require more time and paper pushing than do normal sales. This is because a short sale by definition requires the bank to accept less money than they are owed on a property, in the hope that by doing so, they will receive more money than if the homeowners were to default, which is often a plausible alternative.
The bill was sponsored by Senate Majority Leader Harry Reid, who represents Nevada, a state hit particularly hard by the housing market crash. It was initially attached to a piece of legislation that also requested extended unemployment benefits, but ultimately, the tax credit was the only piece of the legislation that made it through the senate, moving on to President Obama's desk, where it was signed on June 30th. It is anticipated that the unemployment bill will be further debated once a replacement is made for Sen. Robert Byrd, who passed away shortly before these bills went to the floor.
Almost 200,000 people could have lost out on the tax credit had it not been extended earlier last month, mainly because it took longer than 60 days to close on their homes. Recent estimates of completing a short sale run about six months, and that is assuming a clean deal, i.e. a property with no second mortgage or other complications.
Though many in Congress and in the real estate market praise the continued extension of the homebuyer tax credit, there are also those who ask when it will end. Economists argue that the bill is artificially inflating the economy at a time when it has to drop and stabilize. After all it was artificial inflation that caused a large part of the housing crisis in the first place.
Economists argue that by providing this incentive to buy, which is a subsidy in essence, demand is driven up. This in turn can actually create a market for new construction. Instead of filling property abandoned by the crisis, the tax credit has ultimately created more of a market for new home construction, as evidenced by the sharp rise in building permits submitted before the April 30th deadline for being under contract. The longer the tax credit continues and new home construction is driven up, the longer the country might have to wait for the appropriate reallocation of resources, which is what will ultimately fix the economy and reduce the number of distressed properties.
If you were under contract to purchase a home by April 30th and looking to still utilize the first time homebuyer tax credit, now is the time. With home sales taking longer than before due to increased regulation and the number of short sales on the market, it is important to start the process as early as possible to receive the tax credit, worth up to $8,000. Contacting an attorney to help is always a great first step in understanding the purchase and sale process and making sure your transaction goes as smoothly as possible. Especially if you are dealing with the elongated process of a short sale, an attorney's advice and representation can ensure you have the best experience. If you or someone you know is looking to buy or sell a home, please contact our office with any questions. While this latest extension won't help anyone currently shopping for a home, it will assist the roughly 200,000 people who weren't able to close on their house by June 30th.
