Breaking News: Deal Announced to Extend New Homebuyer's Tax Credit Through April 2010

Washington-DCThe Senate announced a bi-partisan deal yesterday to extend the new homebuyer’s tax credit through April 2010. The deal will extend the $8,000 tax credit, which was set to expire in weeks, on homes with values up to $800,000.  While the previous tax credit only applied to homebuyers with salaries of up to $75,000/year for individual and $150,000/couples, the deal raises the requirement, so that the tax credit will now apply to homebuyers with salaries of up to $125,000/year for individuals and $225,000 for couples. This will serve to make the vast majority of homebuyers available for the tax credit. In addition, a  new $6,500 tax credit will be available to home owners wishing to move out of their current homes into more expensive ones.

The extension of the tax credit is expected to cost the government $10.2 billion, which will be offset by delaying a tax-break for U.S. based international corporations from 2010 to 2017.

The extension of the tax credit (as well as the new credit for current homeowners) is expected to help the housing market and real estate industry bounce back from the housing crisis.  It is hoped that the tax credit, which has been successful in the past year, will help the market return to its former strength in 2010.

 

Median Housing Price Falls in the First Quarter

The median price for a home in the US fell to $169,000 in the first quarter, according to a report released by the National Association of Realtors.  The number represents a 14% drop from a year earlier. Median prices in metropolitan areas ranged from a low of $30,300 in Saginaw, MI to 570,000 in Honolulu, HI. The median price has been pulled down due to a number of factors including the surge of first-time homebuyers into the market and the large number of foreclosures being sold.

While it is very tempting to see these statistics as quite negative, they also come with some positives.  Yes, it is disconcerting to see the value of homes decline.  Yesterday we discussed the large number of people who are underwater on their mortgages, and declining home values will only serve to exacerbate the problem.  However, the influx of new buyers into the market is a positive sign for the industry.  New buyers will likely remain in the market, turning people who used to rent into prospective buyers and sellers.  The ultimate increase of prospective buyers should increase the demand within the market, leading to a stronger market in the long run.