With three months until the $8,000 first-time homebuyer tax credit is set to expire, many real estate markets are starting to heat up again as buyers rush to close their deals before the deadline. The credit, created earlier this year as part of the economic recovery stimulus package, has had a visible impact on the housing markets, and many are wondering what will happen when the credit disappears on December 1, 2009.

By the time the program ends, according to estimates from the National Association of Realtors, roughly 1.8 million homebuyers will apply for the tax credit, and 350,000 of those would not have been able to afford to buy without the help. The pressure to file before the deadline has also likely helped boost recent sales increases of new and existing homes, an important economic indicator of the market bottom and revival.

 

How Does It Work?

Anyone who has not owned a primary home in the past three years can qualify for this credit, as long as they fit within the income requirements. For single taxpayers, the income limit is $75,000 and married couples can earn up to $150,000 together. For homes purchased between the set period of January 1, 2009 and December 1, 2009, this tax credit is the greater of 10 percent of the home's price or $8,000, and unlike previous credit it does not need to be repaid.

 

What Will Happen When It Expires?

Congressman Johnny Isakson, R-GA., has been working to extend the tax credit into next year as well as make it more accessible by allowing all homebuyers to participate, regardless of income or current ownership, and by increasing the credit amount to $15,000. His plan is certainly very popular with many inside the housing sector. In a recent interview with U.S. News & World Report, Jerry Howard, President and CEO of the National Association of Home Builders, said he was worried about digression in the markets when the credit ends.

"It is the first-time homebuyer market that represents any positive signs in the industry, and if this credit expires at the end of November," Howard said, "we're really concerned about what that will mean to the market going forward."

He believes Isakson's extension plan would finally allow the market to bottom out, creating price stability and decreasing the number of foreclosures. He also thinks an expanded tax credit would help move inventory at the middle and top levels of the market, not just the starter and fixer-upper homes, leading to a need for more home building.

 

Home Sales Pace

July was another great month for existing U.S. home sales. For the fourth month in a row sales rose, climbing 7.2 percent to 5.24 million units, up from 4.89 million in June. Sales were even up on a yearly basis, rising 5.0 percent from the 4.99 million homes sold in July 2008.