Last November, the federal government extended the new home buyers tax credit of up to $8,000 which did help boost home sales last summer and fall and in an effort to provide an added boost to the housing market the government added a new credit of up to $6,500 for current homeowners. Their hope was that it would transform current homeowners into house-hunters this winter and spring.
So, it begs the question, is it working? Not really.
Real estate agents around the nation are saying the new expanded credit is actually doing very little to elevate home sales and their reasons vary from region to region.
With the unemployment rate hovering close to 10 percent, consumer confidence is still falling. Despite the fact that home prices have pretty much stabilized in some markets around the nation they are still one third below their peak back in 2006.
Do a lot of people want to take advantage of the newly expanded tax credit for current homeowners? Yes. As a matter of fact thousands of people want to take advantage of low prices and low mortgage interest rates, but they are stuck in their current homes because they are worth less than what they originally paid for it. Adding insult to injury, a brutal winter has many east coast Americans digging out from the snow rather than getting their homes ready to be put on the market.
The housing market remains vulnerable which is what the tax credit for current homeowners was intended to change through home price stabilization and it was hoped that it would also improve the economy.
Pumping billions into the housing market the Obama administration had hoped it will lead the nation out of its economic slump, but their efforts to modify home loans facing foreclosure have, for the most part, failed. As a result thousands of deeply discounted homes will hit the market later this year which could stress the market with an uneven balance between high supplies and low demand.
Roberton Williams, senior fellow at the Tax Policy Center in Washington said, "You've got a really big problem that requires big guns, and the tax credit is just not big enough."
With continued concerns regarding high unemployment which could keep buyers vacillating about whether to buy or not, agents believe the credit's true test will come this spring which is always the busiest time of year for home-buying.
According to Moody's Economy.com the major issue affecting borrowers is the fact that they owe more than their home is currently worth. Nearly a third of all homeowners with a mortgage are currently in this type of situation. Furthermore, in many cases, will need to sell their current home in order to afford a new one and claim the credit on their 2011 tax returns.
Many economists conclude that a tax credit is not the sole motivation for a home purchase, but it would rather accelerate sales that would have happened anyway, and once that demand is exhausted it may lead to a drop off.
Patrick Newport, an economist with IHS Global Insight said, "So far, the credit is hardly registering on the economic Richter scale."
Both the extended and the expanded tax breaks are expected to initiate over 500,000 additional home sales this year, but Realtors hope that these tax credits will bring in more buyers as the April deadline approaches.
In order to qualify for the $6,500 expanded credit, buyers must have owned and lived in the same home for five consecutive years out of the past eight and they must also sign a contract by April 30th with escrow closing before June 30th. Lawmakers have the option to extend both tax credits, but right now it's unclear whether that will happen or not.