Fannie Mae: Homebuyer Tax Credits Falter in 2nd Round

Fannie MaeThe extension and expansion of the homebuyer tax credit program have failed to ignite home sales after an initial deadline passed late last year, according to mortgage financing giant Fannie Mae.
The two primary reasons for the lackluster response are a “dried up” pool of qualified first-time homebuyers and a financial incentive that is too low to attract the repeat buyer who qualifies for the expanded program, Fannie said as part of its economic and mortgage market outlook for the rest of 2010.
The first-time homebuyer tax credit of up to $8,000 boosted home sales through the end of November, which would have been its deadline before the Obama Administration extended the program. A second program was added with a tax credit of up to $6,500 for current homeowners looking for a replacement home under certain conditions.
The deadline for both programs is now April 30, 2010. The credits can also be claimed if a binding contract before May 1, 2010 was signed to purchase the property before July 1, 2010.
“The 2009 first-time homebuyer tax credit may have dried up the pool of qualified first-time homebuyers. In addition, while the tax credit was extended to cover repeat buyers, the amount of the credit was smaller than that for first-time homebuyers,” Fannie Mae said.
The tax incentive of up to $6,500 may not be enough to “induce many homeowners to move, given that current homeowners generally must incur commission costs to sell their current homes, a cost not incurred by first-time homebuyers,” Fannie said.
Fannie’s overall economic outlook calls for housing market activity to rebound later this year, but at a slower pace, with fixed-rate mortgage interest rates holding below 5.5 percent.
Fannie views recent drops in new and existing home sales as disappointing, but temporary, with a resurgence expected in the second quarter. The overall forecast calls for moderate economic growth of 3.0 percent for 2010, with a labor market registering slight improvement and consuming spending continuing to nudge upward.
“The recent growth in consumer spending is a positive sign for first quarter gains. However, anxiety over job and income prospects continues to weigh on consumer confidence which will likely lead to moderate spending growth in the coming quarters,” said Fannie Mae Chief Economist Doug Duncan.

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