Tax Break Fight Looms for Potential Home Buyers

When Congress passed an $8,000 tax credit for first-time home buyers last winter, it was intended as a dose of shock therapy during a crisis. Now the question is becoming whether the housing market can function without it.

As many as 40 percent of all home buyers this year will qualify for the credit. It is on track to cost the government $15 billion, more than twice the amount that was projected when Congress passed the stimulus bill in February.

In the view of the real estate industry and some economists, all that money is well spent. They contend the credit is doing what it was meant to do, encouraging a recovery in the housing market that is gathering steam. Analysts say the credit is directly responsible for several hundred thousand home sales.

Skeptics argue that most of the money is going to people who would have bought a home anyway. And they contend that unless it is allowed to expire on schedule in late November, the tax credit is likely to become one more expensive government program that refuses to die.

The powerful 1.1 million-member National Association of Realtors (NAR), wants Congress to extend the credit at least through next summer. The group hopes to expand the program to $15,000 and to allow all buyers, not just those who have been out of the market for at least three years, to qualify. The price tag on that plan: $50 billion to $100 billion.

But the looming expiration of the tax credit on Nov. 30 seems to be playing a role in increasing mortgage applications too, particularly in relatively low-cost markets.

Now the sponsor of the original Senate bill, Johnny Isakson, Republican of Georgia, is back with a new bill that would give a maximum $15,000 credit to any buyer who stays in a home for at least two years.

“The problem now is not first-time buyers, it’s the move-up market — the guy transferred from one market to another who can’t sell his house,” said Mr. Isakson, a former real estate agent.

Without a new and more generous credit, he warned, there would be a downward spiral of home sales and more foreclosures, provoking a second recession.

The NAR estimates that about 350,000 sales this year would not have happened without the lure of the tax credit. Moody’s Economy.com used computer modeling to put the number at 400,000.

Economists are sharply split on the merits of another round of government help.

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