The Senate is expected this week to pass an extension of the credit that was originally going to expire Nov. 30. Buyers who sign a purchase agreement by April can now claim the credit.
The extension will apply to higher income buyers. Previously the credit was available to individual filers making $75,000 a year or less. For couples the limit was $150,000. The new income limit will be $125,000 for individuals and $225,000 for couples.
There’s also something in for move-up buyers. Previously you couldn’t claim the credit if you owned a home in the past three years. Now, if your last home was your primary residence for at lease five years, you can claim $6,500 in credit if you buy a new home. The new house can’t cost more than $800,000 though.
Just in time to kick Washington into action, the National Association of Realtors reported that pending home sales jumped 6% today. That’s the eighth month in a row of sales increases and the longest rising streak since 2001. “What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” said the association’s chief economist Lawrence Yun.
I’ve a written before about the role psychology has in home purchases. No where is that topic more relevant than in what we’re seeing with the tax credit. I participated in an Internet interview last week on the housing market on the Financial Fitness Show . Jim McQuaig, a mortgage broker in Reston, Virginia, said he recently completed financing for a woman buying a $430,000 home who said the $8,000 tax credit was the incentive.
Imagine that, one of the largest purchases of your life and you’re moved to do it by a tax credit worth less than 2% for the purchase price!