With the deadline to qualify for Uncle Sam's homebuyer tax credit quickly approaching, Congressional lawmakers are trying to provide additional time for consumers scrambling to close transactions.
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Last week, three U.S. Senators offered an amendment to a tax extension bill that would push back the date by which homebuyers need to complete their transactions in order to remain eligible for the federal tax perk. Under the terms of the measure, the original June 30 deadline to close transactions would be extended to September 30.
The extra time, however, would only apply to buyers who already have a sales contract. It would not open the door to additional buyers. "All [the measure] does is take the existing law and scratch out June 30 and put in September 30," says Lucien Salvant, a spokesman for the National Association of Realtors (NAR). The measure was introduced by Nevada Democrat Harry Reid, Georgia Republican Johnny Isakson, and Connecticut Democrat Chris Dodd.
The tax credit, which was extended and expanded in November, provides up to $8,000 for qualified home buyers who signed a sales contract by the end of April and complete their transaction by the end of June. The legislation was designed to prod jittery home buyers off the sidelines and help mop up the glut of unsold inventory that is dragging down home prices.
On top of lower prices and cheap mortgage rates, the credit has helped stimulate buyer demand. Existing home sales increased 7 percent in March and 8 percent in April as the contract-signing deadline approached. But this increase in sales has, in some cases, overwhelmed the real estate industry's capacity, thereby lengthening the time is takes to complete a transaction, Salvant says. Meanwhile, many first-time buyers are purchasing distressed properties—such as foreclosures or short sales—which often take longer to complete. These delays could prevent as many as 180,000 home buyers who signed a contract by April 30 from completing their transactions by June 30, NAR says.
"These are not buyers who just entered into the market," NAR President Vicki Cox Golder said in a statement Friday. "These are buyers who previously met all the qualifications for the tax credit, but find themselves at the mercy of a work-flow jam with the lenders or other delays and might not be able to complete the purchase of their homes."
Keith Gumbinger of HSH.com called such an extension sensible. "The systems which make up mortgage lending are clogged," Gumbinger says. "It's reasonable to ask for an extension of that if the delays are not the fault of the purchaser."
Since the measure does not open the door to additional buyers, Celia Chen of Moody's Analytics said it would have little impact on the housing market outlook. "It's just going to spread the sales later into the year," she said. "It's not going to change the actual number of homes that are sold."
The enactment of the measure isn't a done deal. Members of Congress will only turn their attention to the tax extension bill—to which this measure it attached—once they complete work on the contentions financial reform bill, Salvant says. Still, Salvant remains hopeful that the measure will become law before June 30.