First Time Homebuyer’s Tax Credit Set to Expire November 30th

Posted by on Oct 1st, 2009

The wildly popular first-time homebuyers tax credit that was included as part of the American Recovery and Reinvestment Act is set to expire on November 30th.

The first-time homebuyers tax credit has been wildly popular, so much so that realtors have begun lobbying Congress to extend the credit through next year to alleviate the depressed real estate market.

Under the credit, homebuyers that have not owned a home in the last three years before a purchase can receive 10% of the purchase price on a home of up to $80,000 as a tax credit, with a maximum credit of $8,000. In fact, 4 out of every 10 homes that were purchased in 2009 were from buyers that were making use of the credit.

With the credit set to expire, there may be some extraordinary deals for potential homebuyers that did not qualify for the credit in December, January and February. These three months are typically the slowest time of year for the real estate market, and since the first-time homebuyer’s credit will no longer be giving artificial support to the home-buying market, very few people will be buying homes during that period. Since very few homes will likely be sold during this period, there will some great steals on the market for the few people that are actually buying homes.

From a business perspective, banks will be likely originating far fewer mortgages than they would be otherwise. This could mean that the booming real-estate bond market could see a continued shortage of real-estate investment vehicles to purchase into. Over the last several months investors, often through real estate investment trusts, have been purchasing mortgage backed securities at significant discounts in hopes of getting greater gains.

A recent Business Week article reported that the demand for these securities is so high that some investors are now once again paying the full list price for the securities, meaning that investors are no longer terribly concerned about a large number of foreclosures occurring on the mortgages that they hold.