As days tick off the calendar, the life span of the much-ballyhooed tax credit for first-time homebuyers is drawing to an end — unless Congress decides to extend it.
There have been more than a dozen bills introduced in Congress to prolong the life of the tax credit past the Nov. 30 deadline, and on Thursday Senate Majority Leader Harry Reid endorsed the idea of extending the credit for an additional six months. The housing market has been devastated in Reid's home state of Nevada.
This week, the White House said its economic team is evaluating the credit's impact on home sales and will make a recommendation to President Barack Obama.
Treasury Secretary Timothy Geithner said Thursday he hasn't "made a judgment yet" on extending the credit. "Obviously that's something that I'm going to take a careful look at."
The credit is helping stabilize the housing market, but there are conflicting views about the practicality and cost of an extension. The National Association of Realtors and the National Association of Home Builders have launched marketing campaigns touting the credit and have pushed Congress to keep it going. But some lawmakers are balking at the cost, which may hit an estimated $15 billion — more than double the amount projected in February's economic stimulus bill.
The federal tax credit covers up to 10 percent of the home price, or up to $8,000, for first-time buyers. Combined with low mortgage rates and falling home prices, the credit helped end the worst housing recession in a generation.
Home sales have been rising since May. Prices have stabilized and are gradually increasing in many cities. The glut of unsold homes has been pared down.
The tax credit will draw about 400,000 buyers into the market this year, said Mark Zandi, chief economist for Moody's Economy.com, who supports extending the tax credit into at least the middle of next year.
"It's too early for policy makers to step away from the market," Zandi said. "The risks are too high."
Critics, however, see the credit as a subsidy for people who don't need one.
Charles Curtis and his wife weren't even aware of the tax credit until they put a $895,000 all-cash offer in July on a two-bedroom apartment in New York City.
"It was a wow moment," said Curtis, 27, a freelance writer and researcher, who is using their savings plus a financial gift from his parents to pay for the apartment.
Dean Baker, co-director of the Center for Economic and Policy Research, argues the money behind the tax credit could be used for more pressing matters — like unemployment insurance, food stamps and aid to state and local governments.
"It's really bad policy. You're throwing a lot of money, in my mind, in the garbage," said Baker, who actually took advantage of the $8,000 credit this year.
Nevertheless, the odds that Congress will approve an extension are around 60 percent, estimates Jaret Seiberg, an analyst at the Washington Research Group.
There is a widely shared concern on Capitol Hill that without the tax credit, home prices will begin falling again because job losses will continue to curb demand and reverse the this year's gains in the housing market.
First-time homebuyers snapped up three out of 10 homes sold in July. That's about 10 percent below the average for the previous six years, according to the National Association of Realtors.
The recession has cost many would-be homebuyers their jobs or shaved hours off their shifts. The unemployment rate for people between the ages of 25 and 34 is 10.4 percent, compared to 9.7 percent for the work force as a whole. So at a time when lenders are demanding more money up front and better credit scores, many first-time homebuyers are having a harder time scraping together money for a down payment or paying all of their bills on time.
In Jacksonville, Fla., Gerrolynn Gadson has enlisted a nonprofit housing counselor to help her save money, lower her debt and find homes priced around $150,000. Fearing she's running out of time, Gadson is scouring the market for a four-bedroom house. A sales contract typically takes 45 to 60 days to complete.
"I know the process can sometimes take forever once you find the house," said Gadson, 26, an activities planner at a senior center. "If I end up missing out, I'll be kind of upset."
First-time buyers like Gadson spark a chain reaction of home sales. They tend to buy lower priced homes, allowing sellers with growing families to move into larger, more expensive homes.
Neophyte buyers tend to be younger, 30 years old versus 47 years for repeat buyers. Rookie buyers also earn, on average, about $20,000 less per year than repeat buyers. They typically rent or live with relatives before they buy, and often use cash gifts from their parents or a wedding gift for down payments.
And for buyers like Delilah Gawlick, the tax credit helped kick-start their housing hunting.
With a pristine 800-point credit score and a 20 percent down payment, Gawlick qualified for a 4.87 percent interest rate on a three-bedroom condo in Waltham, Mass. She closed on the $135,000 condo in June. She's paying about $1,100 a month for her mortgage and condo fees — $550 less than her previous rent.
"I wasn't originally thinking of buying," said Gawlick, 24, a technical support engineer for a health care software company. "But I'm paying less for mortgage than for rent. That surprised me."