Yesterday the US House of Representatives passed a bill extending thefirst time $8,000 homebuyer tax credit through April 30th. The credit was due to expire at the end of this month. The measure sailed through the Senate on Wednesday and awaits President Barack Obama’s signature.
Additionally, the credit will now apply up to $6500 to home buyers who have been in their current homes for at least five consecutive years out of the last eight. For this second group, new homes can’t cost more than $800,000. Traditionally, most second home sales are for bigger places, since increases in equity allow people to trade up. Yet with so many homes underwater in value, this second tax break is expected to increase the upward price pressure on so called starter houses, since now some people with excessive home loan payments can get a tax break to move into a smaller home to lower their mortgages. If you are considering this option, see if your lender is amenable to a short sale.
The legislation also raises the qualifying income level to $125,000 for individuals, and $225, 000 for couples.
Economists credit the tax break with stabilizing the housing market on the low end slowing the erosion of equity for millions of home owners.Moody’s chief economist estimates that the current credit has been the impetus for the sale of 400,000 new homes this year lessening the glut of homes for sale on the market, yet because it takes time to shop for real estate, arrange inspections and financing, the credit’s pending expiration was anticipated to slow housing demand this month.
The bill also contains provisions that will give the IRS authority to prosecute the fraud that had marred the credit’s first iteration.
Although not officially labeled a stimulus bill, the package has other proposals that will boost the economy:
- Unemployment benefits have been extended up to 20 weeks in states with unemployment rates over 8.5% According to the National Employment Law Project, the six week extension is expected to benefit 1 million of people who would have otherwise lost their benefits before December 31st.
- Businesses with operating losses in 2008 and 2009 will be allowed to seek tax refunds on profits paid over the last five years. Business that accepted Troubled Asset Relief Program (TARP) money are not allowed these refunds. Any refunds for taxes in the fifth year would be cut in half.
“With 15 million Americans still unemployed and vying for just three million available jobs, we did the right thing today by passing this bill and doing it in a fiscally responsible way,” said Sen. Max Baucus, D-Montana, Chairman of the Senate Finance Committee who helped shape the legislation. “Today, we gave unemployed Americans the chance they need to get back on their feet, get through this tough time and get working again.”
As if on cue, the day after the bill passed the Senate, new claims for unemployment dropped by 20,000 to a seasonally adjusted rate of 512,000. Last month’s figures weren’t as good. In data released today, national unemployment climbed to 10.2% the highest rate in 26 years.
In other good economic news, October’s retail sales increased by 4% at established stores when compared with the same month the year before. It’s the second monthly retail increase in a row and the best retail sales performance since July of 2008. Discount stores were the big winners.
To sum it up: the economy is getting a boost on home sales at the low end, retail sales at discount stores are increasing, and the rise in unemployment is slowing. Although the data is only preliminary, they could signal that Americans at least for now, have stopped living beyond their means.
