Dodd wants to bolster homebuyer tax credit

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By Dawn Kopecki BLOOMBERG NEWS

The $8,000 homebuyer tax credit should be extended beyond next month's expiration and expanded to more borrowers to buoy housing sales, Senate Banking Committee Chairman Christopher J. Dodd said.

Mr. Dodd, Connecticut Democrat, and Sen. Johnny Isakson, Georgia Republican and former Realtor, urged colleagues to extend the credit through next June and to expand it to all couples earning $300,000 or less.

The Obama administration's tax credit for first-time buyers helped stabilize sales this year after the worst housing slump since the Great Depression, Realtors and mortgage bankers said. Lawmakers are struggling to find ways to fuel real estate demand amid rising unemployment and a jump in foreclosures that may add to inventories of unsold homes.

"The work of stabilizing the housing market won't be done" when the credit expires next month, Mr. Dodd said at a hearing of his panel Tuesday. "We still need to use every tool at our disposal to fix this problem."

Purchases of existing homes in August were up 3.4 percent compared with a year earlier, the National Association of Realtors said.

Builders broke ground on fewer homes than forecast and wholesale prices unexpectedly fell in September, giving the Federal Reserve more reason to keep interest rates low to ensure an economic recovery, a Commerce Department report released Tuesday shows. Housing starts rose 0.5 percent to an annual rate of 590,000 from a 587,000 pace in August that was lower than previously estimated, the report shows.

The Mortgage Bankers Association projects that foreclosure rates already at a record will climb through late next year, peaking only after the U.S. unemployment rate reaches 10.2 percent in the second quarter. An estimated 3.9 million houses for sale, and many more homes with mortgage payments that are at least 90 days past due make up a "shadow" foreclosure inventory, according to Mortgage Bankers data.

The Mortgage Bankers, National Association of Realtors and National Association of Homebuilders back the extension, saying it has helped home sales. About 2 million people this year have used the credit, which expires Nov. 30 and is available to individuals who earn less than $75,000, or $150,000 for couples. Mr. Isakson estimates that extending it through June 30 and expanding to more borrowers will cost the federal government less than $17 billion.

Treasury Secretary Timothy F. Geithner said last month that the Obama administration plans to take a "careful look" at the proposal.

Sen. Richard C. Shelby of Alabama, the committee's ranking Republican, cautioned lawmakers against continuing policies that artificially inflated home prices and exacerbated the run-up in real estate values that caused the bubble. "We must recognize and understand that much of the decrease in home values was simply a deflation of the bubble created in part by our own housing policies," he said.

• Bloomberg writer Carlos Torres contributed to this story.