After much wrangling, the House and Senate came together in Conference Committee and each subsequently passed President Obama’s Stimulus Bill in record time. President Obama has now signed this historic legislation. The Stimulus Bill provides in part for a refundable tax credit for first time home buyers (who are defined as buyers who have not owned their primary residence for the past three years). Although previous versions of the bill included a credit of as much as $15,000, the final bill provides a credit equal to 10% of the purchase price of the home with a cap of $8,000. The purchase must be made between January 1 and November 30, 2009 and the credit is phased out for individuals with incomes in excess of $75,000 and married couples filing jointly with incomes in excess of $150,000Purchasers must own the home for three years or the credit is subject to recapture. The previous law that the stimulus bill amends provided a “credit” of up to $7,500, however, the “credit” had to be re-paid with $500 per year payments. This requirement has been stricken in the new legislation.

The change will be an incentive for some home buyers to enter the market, particularly those who may have been sitting on the sidelines waiting for the market to reach bottom. Limiting the availability of the credit to prior to December 1, 2009 will help to force prospective buyers off the fence—if they wait for the market to further decline, they will miss the opportunity of the tax credit. 

Will the tax credit change the housing market? Some. It targets those most likely to buy (i.e. those who do not have to first sell their home) and it eases some of the fear that once purchased the home value will immediate fall. We do not expect to see a large swing in either the volume of home sales or the value of home sales, but a small swing is possible. Chief Economist for the National Association of Realtors, Lawrence Yun, was quoted on CNNMoney.Com estimating that the tax credit will bring approximately 300,000 new buyers to the market. Congress is hoping that this small group of buyers will provide momentum for the overall housing market and help to clean out the excess inventory of homes for sale on the open market due to foreclosures. 

Will home builders feel an immediate impact? Unlikely. Those selling “starter homes” will benefit the most. Luxury home builders will have to wait until the momentum is in full swing. 

What about lenders? Lenders should see a slight up tick in new home loans.