Will the Government extend the $8000 tax credit past Nov. 30th 2008??

Why would the government extend the program?

While there has been no official word on extending the home buyer tax credit, many believe it will be continued past the current December 1, 2009 deadline. The reason behind this thinking is that the tax credit was originally issued to encourage buying activity. Bringing more buyers into the market should have a positive effect on demand helping to level home prices. Think of it this way, if the goverment's tax credit program brought buyers into the market that would not have otherwise purchased a home, they would be benefiting the demand side of a supply/demand relationship. One of the main reasons home values have declined (excluding the initial price correction itself) is because there is now more supply than demand on the market. This causes buyers to have an upper hand ("buyers market" = more sellers than buyers), and encourages sellers to lower their prices to attract the few buyers in the market. When one seller reduces their price it starts a chain reaction against other sellers in the same market with similar homes. The fastest way to stabilize home prices is by bringing more buyers to the market, which will then, in theory equalize supply and demand. This would cause home prices to flatten and potentially begin appreciating. The general thought is that the government may extend the program because we have not fully seen this happen. Extending the program would allow more time for buyers to take advantage of the program and hopefully fuel a stabilization of home prices.

Why would the government not extend the program?

Ultimately this is just the other side of the coin. If the government feels that it has accomplished its goal (to help stabilize the market), than there is no reason to extend the program. Whether or not this has happened is an opinion and is difficult to determine. What cannot be disputed is that home value declines have slowed dramatically over 2009, and in some markets values have begun to appreciate. Either way, we are unlikely to have any information as to whether they will extend or not until we are very close to the existing deadline. The government has a history of waiting until the last moment before deciding to extend or cancel programs (eg. 'cash for clunkers').

What does this mean to me?P

Plainly put, if you are on the fence about buying, get off and go buy. If you are simply holding out because you believe you may be able to get a better deal, and are risking a free $8,000 to do it, the risk is probably not worth the reward. If the government chooses not to extend we will likely not know that until the last week or so of November. The current program says you must be signed, closed, and transferred by December 1st. If you found out near the end of November that the program was not to be renewed it would be too late to find a home, negotiate an offer and close a loan. In the end you would not be able to capitalize on the program should they decide not to renew.

Additionally interest rates continue to be at or near historic lows, and the unseen factor in this is that a rise in rates of only .25% or .50% (which would still leave rates near historic lows) can wipe out all of your purchase price savings. In the end it is very likely that no one will know the fate of the home buyer credit until we are much closer to the deadline.

The answer is simple, now is a great time to purchase! Rates are at historic lows, the $8000 tax credit will pay YOU back come tax time and the market is still near or at the bottom in many areas of the country.