— The federal tax credit for first-time home buyers has given the ailing housing market a shot in the arm. But with the program set to expire at the end of November, a lot of buyers and sellers are wondering: Will Congress extend it into next year?
My husband and I are looking to purchase a new house in the spring of next year. … We spoke to a realtor who is pushing us to put our house up now so that new home buyers could take advantage of the tax credit that is due to expire later this year. We were really hoping to wait as we were going to use our tax refund to offset the costs associated with the purchase. My question is have you heard anything about the tax credit being extended into the New Year?
— Heather, Lockport, N.Y.
At this writing, more than a dozen bills have been introduced in Congress to keep this tax credit going past the Nov. 30 deadline. Last week, Senate Majority Leader Harry Reid endorsed the idea of extending it for an additional six months. The White House is reviewing the program, but Treasury Secretary Timothy Geithner said last week he hasn't "made a judgment yet" on extending the credit.
The program has succeeded in what its designers intended; home sales have perked up noticeably since the credit was enacted. But it remains to be seen whether the tax credit was enough to stop the downward spiral in the housing market. The ongoing rise in foreclosures doesn’t bode well.
There is also strong opposition to extending the credit from members of Congress who are worried about the cost. With the federal budget deficit exploding, these folks are rightly concerned about the impact of piling more borrowing on the national debt. Even if the program ends at the end of November, the cost could hit an estimated $15 billion, which is more than double what its supporters projected when it was passed in February as part of the economic stimulus package.
So it’s entirely possible we’ll see an extension, but no one knows. No one can know. One thing you can be sure of is that your pushy real estate agent is clearly much more interested in locking up a commission than in helping you make the decision that’s right for you.
The large cast of bad actors that got us into this housing mess clearly includes the army of real estate agents out there who insisted that “home prices never go down.” Many of these folks are honest, decent souls who perform a legitimate function. Others are less honorable. Unfortunately you can’t tell which one you’ve got until after the damage is done.
So take anything and everything you hear from a real estate agent with a healthy dose of skepticism. The industry has long known it has an image problem, which is why it came up with a fancy new word so they can call themselves Realtors®™©, etc. Whatever they’re called, these folks get paid to convince you to sell your house and convince someone else to buy it. Keep that foremost in your mind when they give you advice — especially about market conditions, forecasts and the timing of a sale. In thirty years, I have never heard a real estate agent say “This is a terrible time to buy a house.”
But no one can predict whether the credit will be extended. There are strong forces lined up on both sides. (You can bet those pushy real estate agents are lobbying hard for an extension.)
Taking the wait-and-see approach could backfire. To qualify, the buyer has to take title to the house before Nov. 30. The recent pickup in home buying has generated more traffic throughout the closing process, so you’ll need to find a buyer fairly soon if you want to beat the Nov. 30 deadline.
Keep in mind that not everyone who qualifies for this program gets $8,000. (“First time” buyers are defined as anyone who hasn’t owned a primary residence in the last three years.) The credit is “refundable” — which means you get it even if you don’t owe any taxes — and amounts to 10 percent of the purchase price, with a maximum of $8,000. There are also income limits; only buyers with adjusted gross income of $75,000 ($150,000 for married couples) or less are eligible for the full credit.
One other point to consider. If you’re relying on a sizeable tax refund to pay for your new house, you’re probably having too much money withheld from your weekly paycheck. Everyone prefers getting a refund to owing tax in April. But if you’ve overpaid by a substantial amount, you’re just given the government an interest-free loan for all those months they collected more money than you owe. Check with your payroll manager to crank down your withholding a notch and give yourself a little raise.
You’re correct that the people who don’t pay back what they've borrowed cost the rest of us more money in higher rates. Lenders build into the price they charge us all to borrow money the cost that some of that money won’t come back. Sometimes, they completely miscalculate and go out of business. Nowadays, they go to the government for help.
Credit card rates are higher than other loans like mortgages because they’re unsecured. Lenders can offer lower rate on a secured debt like, say, a car loan, because the risk is lower. If you don’t pay it back, the debt can be (mostly) made good by repossessing your car and selling it. It’s pretty hard to repossess that delicious dinner for eight with four bottles of wine your deadbeat friend now refuses to pay for.
That why card companies pay credit agencies to track your personal finances and try to guess the odds that you’ll stiff them. The higher the risk, the higher the rate.
If you truly are one of those folks who pay their card off in full every month, your deadbeat friend really isn’t costing you anything. Unless you leave an unpaid balance, you’re not paying any interest. (Ironically, you’re the one credit card lenders refer to as a “deadbeat” because they don’t make any money off people who pay in full every month.)
As for your friend, rest assured that “staying under the radar” of credit card companies is increasingly difficult to do these days. True, with the economy in shambles, and millions of unemployed households struggling to pay the bills, the debt collectors are working overtime. But with so much debt going bad, banks aren’t in the mood to “settle for pennies on the dollar.” If may take them awhile, but the odds are good that your friends creditors will eventually see his blip on their radar screen.
If you still feel the need to drop a dime and rat on your friend, you could always call the card company and give them the pertinent information. It may make you feel better. But it’s unlikely you’ll have much impact. Card issuers rely on collections companies they know and do business with to chase down deadbeats. If they started trying to follow up and verify calls from every stranger who wanted to get back at an ex-spouse or business competitors, they’d have their hands full.