Why Extending the Home Buyer Tax Credit Closing Deadline Makes Sense

It looks like a deal might be in the works to extend the closing deadline for the Home Buyer Tax Credit.  Multiple sources reported that Senate Majority Leader Harry Reid expressed his support for an extension, and had some bipartisan support.  Although it’s not a sure thing, especially since any extension is going to be tacked on as an amendment to a fairly controversial jobs bill, it’s certainly good news to know that a number of Senators have publicly backed the extension.

As we argued earlier this week, an extension would be a good thing:

1. It’s simply not possible to close the number of deals that went into contract in the past few months by the June 30th deadline. The real estate settlement  industry — lenders, settlement agents, attorneys — are simply not equipped to close the number of deals that are in the pipeline by the June 30th deadline.  They don’t have the personnel, and no one is going to hire and train a bunch of new employees to handle what will be a short-term staffing problem.  Moreover, transactions generally have taken longer to close in the past year or so anyway, simply because of tighter lending guidelines and requirements and the prevalence of foreclosure and short-sale purchases that require longer approval times. (Diana Olick’s excellent Reality Check housing blog on CNBC reports that Reid actually cited the short sale issue as the driving factor for the decision).
2. This means that a lot of buyers who legitimately played by the rules will be unable to claim the credit unless the deadline is expected. This won’t be through any fault of their own, just the reality that going from contract to closing takes longer than it used to.  These people did everything they need to do to claim the credit, but they’ll be victims of the overload on the industry if they don’t get an extension.
3. Finally, the extension won’t dramatically change the expected cost of the Home Buyer Tax Credit. When Congress scored (i.e., estimated the cost) the bill, they assumed that people who got into contract would be able to close within the two months between the contract deadline of April 30 and the closing deadline of June 30th.  But the credit did not really generate the business we all expected until April, with buyers basically waiting to the last minute.  Now, all those under-the-wire buyers have created a huge pipeline of transactions in such a short time that they cannot possibly all close by the deadline.  But it doesn’t seem to be more transactions overall than anyone expected when they priced out the bill, so extending the closing deadline will not dramatically increase the cost to the Treasury.

Note that no one is discussing re-opening the eligibility for the tax credit — that is, the April 30 deadline for going into contract is almost certainly to stay in place as a cutoff for eligibility.  All that’s being discussed is giving buyers more time to close their transactions.

We’ll keep you posted.