By Brian Faler and Ryan J. Donmoyer
Oct. 29 (Bloomberg) -- The Obama administration endorsed plans to extend an $8,000 tax credit for first-time homebuyers, saying it is helping stabilize the nation's housing market.
The tax break, enacted earlier this year as part of the $787 billion economic stimulus package, has "brought new families into the housing market and contributed to three consecutive months of rising home prices," Treasury Secretary Timothy Geithner said today in a statement. The tax break will expire Nov. 30 unless Congress intervenes.
Senate Democrats have announced plans to extend the credit until April 30, while expanding it to include higher-income Americans and some who already own homes.
Senate Finance Committee Chairman Max Baucus said today the new plan would offer a $6,500 credit for homebuyers who have lived in their prior residence for at least five years. Couples earning up to $225,000 and individuals up to $125,000 would qualify for the break, Baucus said. That's up from the current $75,000 limit for individuals and $150,000 for couples.
"The success of the American economy is closely tied to the success of the housing market; by helping to stabilize the housing market, the homebuyer tax credit has helped to shore up the economy as it begins to recover," said Baucus, a Montana Democrat. "This would enable an even greater number of potential homebuyers to take the credit."
Millions of renters earn more than $75,000, he said.
Democrats have been pushing to include the provisions in an unemployment-benefits bill, which has been held up by a disagreement with Republicans over other proposed amendments. Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said he expects the chamber to vote on the tax-credit plan within a week.
The administration's statement didn't specifically endorse expanding the break beyond first-time homebuyers. Dodd expressed confidence President Barack Obama would sign such legislation.
Lawmakers said they want to prevent home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression. More than 1.2 million borrowers have claimed $8.5 billion of the $13.6 billion set aside for the homebuyer tax credits this year, according to the Treasury Department.
The Democrats' proposal would extend the credit to home purchases under contract by April 30 so long as they close the sale within 60 days. The measure would require those receiving the tax break to remain in their new homes for three years; otherwise, they would have to repay the credit.
Those buying homes worth more than $800,000 wouldn't be eligible for the credit, said Baucus. Lawmakers also said they won't extend the break beyond the new April 30 deadline.
"The American people should understand this -- and the affected industries -- this is the last extension," said Senator Johnny Isakson, a Georgia Republican. "Tax credits like this only work by creating the sense of urgency to take advantage of them."
Isakson estimated the new plan would cost $10.2 billion. Dodd said the plan wouldn't add to the government's budget deficit because lawmakers plan to finance it by delaying a tax break for multinational companies scheduled to take effect next year.
House Speaker Nancy Pelosi, a California Democrat, is waiting to see the final Senate agreement on extending the tax credit before deciding whether to support it, said spokesman Nadeam Elshami.
While the tax credit speeds demand for homes from next year to this year, it won't necessarily increase overall sales, said Scott Buchta, head of investment strategy at Guggenheim Securities LLC in Chicago.
"They do need to expand the credit to get more people involved, but at the end of the day you are paying people tax dollars to do what they probably would have done anyway," Buchta said. "If it is passed, home sales of lower-priced homes should continue to hold their ground. However, if it is not passed we will probably see home sales slow down as we wait for natural demand to build up again."
Senate Majority Leader Harry Reid, a Nevada Democrat, said yesterday that there is significant support among both parties for the homebuyers' tax credit. He said the other amendments to the unemployment bill sought by Republicans are designed to embarrass his Democratic colleagues by forcing votes on extraneous issues. Republicans want to vote on amendments on immigration and to bar funding for the community activist group Acorn.
Senate Minority Leader Mitch McConnell, a Kentucky Republican, agreed that most lawmakers support the unemployment and homebuyer measures. "We're not that far away from an agreement," he said yesterday.
To contact the reporters on this story: Dawn Kopecki in Washington at firstname.lastname@example.org; Brian Faler in Washington at email@example.com
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