Extend tax credit

The American economy has survived the emergency room, but it’s not ready to walk out of the hospital under its own power.

Yet one of the things that has helped nurse the economy back to a semblance of health might soon be taken away.

The $8,000 tax credit for first-time homebuyers is set to end Nov. 30.

Sen. Jeff Merkley, D-Ore., is among the lawmakers advocating for continuing the credit until June 30, 2010, and possibly through the end of 2010, albeit at some amount less than $8,000.

We agree with Merkley.

Last week, Senate Democrats suggested a compromise of sorts. Their plan, which is endorsed by President Obama, would continue the tax credit through April 30, 2010, and also add a $6,500 credit for buyers who had lived in their previous home for at least five years.

The homebuyer tax credit has aided in the improvement of the nation’s housing market since it was introduced as part of the federal stimulus package last winter.

Starting in April, new home sales rose for five consecutive months.

But that momentum was stifled in September, when sales dropped to 402,000, 15,000 fewer than in August.

Critics suggest that those statistics prove the program has contributed all it can.

But the most significant statistic is not sales of new homes.

It’s sales of existing homes.

And that market is booming, largely because of the tax credit.

In September, sales of existing homes totaled 5.57 million. That’s a 9.4 percent increase over August, and the highest monthly total since July 2007, according to the National Association of Realtors.

We’re worried that canceling the tax credit on Nov. 30 will trigger two trends, both harmful to the housing market specifically, and to the economy in general.

First, the busy trade for existing homes probably will slow as soon as the tax credit ends.

Lawrence Yun, chief economist for the National Association of Realtors, said “much of the momentum is from people responding to the first-time buyer tax credit.”

Second, we’re worried that September’s dip in new home sales could turn into a deep plunge if the tax credit is canceled Nov. 30.

The bottom line here is that the housing market is neither stable nor healthy.

In many regions there’s still a glut of homes for sale. Yet conditions haven’t been so favorable for buyers, thanks to the tax credit, lower prices and record-low interest rates, in at least 30 years.

The tax credit should not continue indefinitely, of course.

The incentive to apply is much greater if the credit has a fixed expiration date.

But Nov. 30 — less than a month away — is too soon.