WASHINGTON AND LOS ANGELES — The drumbeat is growing in Washington for extending -- even expanding -- the popular $8,000 tax credit for first-time home buyers, a soon-expiring benefit that some experts estimate is on its way to spurring as many as 400,000 additional sales this year.
The program has been a component in the federal effort to resuscitate the devastated real estate market. Reversing falling housing prices by stimulating sales is a key to halting the tide of foreclosures that have helped drag down the economy. The Federal Reserve this week decided to leave key interest rates untouched at historic lows, which has helped push mortgage rates below 5%.
The tax credit is set to end Nov. 30, but that means buyers have to agree to terms soon to get deals closed by then.
The deadline persuaded Sean Custeau, 24, of La Mesa and Izzy Monroy, 27, of Mira Mesa to kick their housing search into high gear. The couple want to start a family, and decided that buying a home was a higher priority than having a big wedding.
"$8,000 isn't going to make a difference between a two-bed, two-bath and a mansion," Custeau said. "But without it, I wouldn't be looking as hard for a house."
Realtors and home builders, along with many members of Congress, are pushing hard for an extension of the program. They argue that although the housing market has shown signs of recovery, it still needs the help.
That point was driven home Thursday when the National Assn. of Realtors reported that sales of previously owned homes nationwide fell slightly in August compared with July, the first drop in four months.
"If anyone thinks this housing crisis has ended . . . that's not the case," Rep. Ken Calvert (R-Corona) said. "There's a significant amount of inventory throughout a large part of this country, especially in Southern California."
He has introduced a bill to extend the credit for a year, expand it to provide $15,000 and make it available to anyone who buys a house. "A lot of people are still waiting on the sidelines, waiting for the clear 'buy' signal. I think we need to give them one."
It won't come cheaply. The Congressional Budget Office estimated the existing credit will cost the government about $14.7 billion over the next 10 years -- about twice as much as lawmakers anticipated when they included it in the economic stimulus legislation in February. About 1.4 million people have claimed the credit, according to the Internal Revenue Service.
And some analysts argue that the tax credit is doing little to spur sales and instead is providing a windfall to hundreds of thousands of Americans who would have bought a home anyway.
Dr. Krupali Tejura, 33, a radiation oncologist from Corona, said she wasn't lured by the credit. She closed escrow Thursday on a single-family home in Newport Beach after following the market there for three years. When she found a good deal near the ocean this summer, she jumped.
The $8,000 tax credit was just "icing on the cake," Tejura said.
"It's going to offset some costs, and it's a nice asset to have," Tejura said. "But I needed to get into the market when I did, when it was on an upswing, because especially in that neighborhood, it's not going to fall that much farther down."
Still, with economic recovery hinging on a stabilized housing market, there is strong bipartisan support in Congress for continuing the credit. There are at least 20 bills seeking an extension, and the Obama administration is considering supporting such a move.
"I've talked to a lot of members of the Senate. . . . None I've talked to think it's advisable for this credit to come off at this time," said Sen. Benjamin L. Cardin (D-Md.), who is sponsoring legislation to extend the credit for six months.
But Congress does not appear ready to act soon because the expiration still is more than two months away and the key committees that would handle an extension are focused on healthcare legislation.
That means first-time home buyers soon will enter an uncertain period in which they will not have enough time to close a sale by Nov. 30 but won't be sure the tax credit will be available afterward.
"It's taking in many markets as long as 60 days to get to settlement," said Linda Goold, tax counsel for the National Assn. of Realtors. "That means you better be under contract this week."
Through July, the tax credit spurred about 175,000 home sales, according to an analysis by Mark Zandi, chief economist at Moody's Economy.com. That trend would lead to nearly 375,000 such sales through Nov. 30, he said.
"I think that letting it expire would result in a much weaker housing market this winter at just the wrong time, when the housing market is trying to find its footing and the recovery is trying to gain traction," said Zandi, who favors extending the credit through the middle of 2010.