Tax-credit extension: now is time to buy

Existing homebuyers now have a rare opportunity to sell their current homes and get a break on an upgrade under the latest extension of the homebuyer tax credit.

Not only has Congress extended through May 1 its $8,000 tax credit for first-time homebuyers (who haven’t owned a home in at least three years), it has included a $6,500 tax credit for those who have lived in their homes for five years or more and looking to move up.

Buyers are subject to income limits. And to qualify, they have to sign purchase agreements before April 30 and close before July 1.

If people are interested they should consider buying now, because the rumor among real estate professionals is that interest rates will go up around March 2010, when the federal government stops directly buying mortgages.

The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.

The hope is that by expanding the tax credit time limit as well as to whom it’s offered will help stabilize housing markets during what is normally a slow season of the year for home sales.

Today, many would-be buyers are still worried that home values could drop further, Lawrence Yun, chief economist at the National Association of Realtors, told the Associated Press.

"Once the consumer fear factor disappears, then housing can move into a sustainable recovery," Yun says. "I think we will be there by the middle of next year."

Yun says the tax credit has helped to increase demand and reduce inventory, enabling sellers to get higher prices than they would have otherwise.

About 1.4 million first-time homebuyers had qualified for the credit through August, according to the Associated Press. The National Association of Realtors estimates that 350,000 of those buyers would not have purchased their homes without the credit.