Senate Said to Agree on Extending Homebuyer Tax Credit

The U.S. Senate has reached broad agreement on a bill to extend the $8,000 first-time homebuyer tax credit and offer a credit to existing homeowners as well, according to numerous media sources.

Various media are reporting that Senate leaders reached a bipartisan agreement to extend the $8,000 tax credit for first-time homebuyers into next year. In addition, existing homeowners who have been in their current home at least five years would be eligible for a $6,500 tax credit.

To qualify, home sales contracts would have to be signed by April 30 and closed by June 30, the Washington Post is reporting.

Provision for existing homeowners as well

Eligibility for the credit would also be expanded to individuals making up to $125,000 a year and couples earning up to $250,000, according to the office of Senate Majority Leader Harry Reid (D-Nev.) The current limits are $75,000 for an individual and $150,000 for couples.

The existing first-time homebuyer credit is due to expire Nov. 30. Many in the mortgage and housing industry, including the National Association of Realtors (NAR), National Association of Home Builders (NAHB) and Mortgage Bankers Association (MBA) have been lobbying hard for an extension.

The tax credit is widely seen as helping to breathe life into the struggling housing market, where existing home sales have risen in five of the last six months, according to the NAR, which attributes those gains to large numbers of purchases by first-time buyers

Broad bipartisan support reported

Senate Minority Leader Mitch McConnell (R-Ky.) has told reporters that most Republican senators support the new proposal, although an aide cautioned that things could still change by the time the final legislation reaches the Senate floor.

Full details of the proposed legislation, which could pass the Senate next week, are not yet available. However, it was reported on Wednesday that Reid and Senate Finance Committee Chairman Max Baucus (D-Mont.), are pushing a proposal to gradually phase out the credit throughout 2010. Under their proposal, the $8,000 first-time credit would drop to $6,000 in April, $4,000 in July, $2,000 in October and terminate on Dec. 31, 2010.

The phase-out would seek to address concerns about the effect on the economy of abruptly ending the credit, which many fear would send the housing market back into a tailspin.

Not everyone is convinced that the recent rally in the housing market is due to the tax credit, or that ending it would be a bad thing. Cameron Findlay, chief economist at LendingTree, told the Wall Street Journal this week that he thinks the effect of the tax credit has been overblown and that its expiration would have only a minor effect on the housing market.

Many observers believe that other factors, including dropping home prices and historically low interest rates, have had a bigger effect on housing sales than the tax credit has.