Current tax credit program hits the skids

It looks like the $6,500 tax credit for existing homeowners looking to buy another home has been pretty much DOA for a variety of reasons. From an AP story via MSNBC.com:

It sounded like a great idea three months ago: Hand homeowners a $6,500 tax credit to find a new place to live, giving a thrust of energy to the housing market's recovery.

So far, people are staying put.

In November, the federal government extended a tax credit of up to $8,000 for people who hadn't owned a home for three years. This credit had helped boost home sales last summer and fall. Seeking to build on that momentum, the government added a new credit of up to $6,500 for current homeowners, hoping it would transform them into house-hunters this winter and spring...

But real estate agents around the country say the credit is doing little to elevate sales. Reasons vary.

The unemployment rate is still near 10 percent and consumer confidence is falling. Home prices have stabilized in some markets, but are still a third below their 2006 peak. Droves of people who want to sell are stuck because their home is worth less than they paid for it. Harsh winter weather has Americans shoveling driveways instead of preparing their home for buyer visits...

Agents believe the credit's true test will come in the spring, the busiest home-buying season. Concerns about high unemployment could keep buyers on the fence...

Another problem is that homeowners, in many cases, will need to sell their current home to afford a new one and claim the credit on tax returns. That's a major issue for borrowers who owe more than their home is worth. Nearly one-in-three homeowners with a mortgage is currently in that situation, according to Moody's Economy.com.

Also, $6,500 may not mean much to a buyer with enough equity to sell a property and afford another home. The savings will hardly dent down payments or moving costs. Most sellers employ real estate agents who typically receive 6 percent of the sales price...

Economists argue that a tax credit is rarely the sole motivation for a home purchase. Many believe tax credits just accelerate sales that would have happened anyway, leading to a drop off once that demand is exhausted...

To qualify for the $6,500 credit, buyers must have owned and lived in the same home for five consecutive years out of the past eight. They must sign a contract by April 30 and close before June 30. Lawmakers can extend both tax credits, but it's not clear if they will.

The home's purchase price can't exceed $800,000, and it must be used as a main residence. The income limit for single taxpayers is $125,000; for a married couple, it's $225,000.