The U.S. House of Representatives voted Thursday to extend the first-time homebuyer tax credit through 2010 as well as offer a credit to more seasoned homebuyers. The vote was 403-to-12 and was widely expected to pass.

The current tax credit has been in effect since January as a piece of President Obama’s economic stimulus plan and has allowed first-time homebuyers an $8,000 tax credit. It has been credited with jump starting the fallen national housing market, resulting in increases in existing homes over the past several months. Many feared that if it were allowed to expire as it was set to on December 1, that the real estate market would see a dramatic drop again.

Here’s how the extension works:

Buyers must be entered into a mortgage contract for a home purchase by midnight on April 30, 2010 and must close on their sale by midnight of June 30, 2010. First-time homebuyers will still receive $8,000 in tax credits, while previous homeowners (specifically those who have owned their current homes for at least five years) will be allowed $6,500 in credits.

The purchased homes must be principal residences and may not exceed $800,000 in price. Those with an income of $145,000 or more ($245,000 if married filing jointly) are not eligible for the credit and those with incomes between $125,000 and $145,00 would receive a reduced credit.

Many hope that this extension will get things moving in not only the lower-priced end of housing but in the middle-priced range as well. Lawrence Yun, chief economist for the National Association of Realtors believes that it might stem potential buyers’ fears about falling home prices.

“Once the consumer fear factor disappears, then housing can move into a sustainable recovery,’’ Yun said. “I think we will be there by the middle of next year.’’

I like how Patti Ketcham put it, a Tallahassee real estate firm owner, as quoted in the Boston Globe. “It’s huge. I think it’s going to have a big impact. I hope I’m right. Golly, I hope I’m right.”

A majority of the nations’ states saw an increase in their existing home sales during the second quarter of this year. Those sales jumps came at the cost of median home price decreases in 129 out of the 155 metropolitan areas monitored by the National Association of Realtors.

Still, this news is very encouraging for the overall housing market, according to Lawrence Yun, NAR chief economist.

“With low interest rates, lower home prices and a first-time buyer tax credit, we’ve been seeing healthy increases in home sales, which are a hopeful sign for the economy,” he said.  “There have been sustained sales gains in Arizona, Nevada and Florida, as well as diverse areas such as Maryland, the District of Columbia and Nebraska.  More recently, we’ve seen strong double-digit gains in Idaho, Utah, New Mexico, Washington, Hawaii, New York, New Jersey, Maine, Vermont, Wisconsin, Indiana, South Dakota and Montana.”

This can only mean good things for the economy as well, Yun said.  “Given the need for related goods and services, each home sale pumps an additional $63,000 into the economy – that’s how the housing engine traditionally pulls us out of recession.  In addition, sales are drawing down inventory and that will help stabilize home values, which in turn will lessen foreclosure pressure and boost credit availability for other sectors of the economy.”

Existing home sales on average were up 3.8 percent during the second quarter to 4.76 million units from 4.58 million homes during the first three months of the year. The national median home price fell to $174,100, a 15.6 percent drop from the second quarter of 2008.

So home prices continue to fall but inventory is down and there is much more movement in the market. A report is due out within the next few weeks about home sales from July and an increase would mean four straight months of sales growth. It’s hard not to feel hopeful after such improvement.

After rising for two months, homebuilder confidence sipped down in June as mortgage rates skyrocketed up.
The National Association of Homebuilders’ housing market index, a measure of builder confidence fell to 15 this month, down from 16 in May. Anything below 50 indicates that more builders view the housing market conditions  as poor rather than favorable. So obviously even last month no one was jumping up and down for joy about the market, but they were cautiously increasing in their optimism that the housing bust would be shorter than expected. The latest developments have builders worried that the end is not yet in sight.

“The housing market continues to bump along trying to find a bottom,” NAHB chief economist David Crowe said. “Builders are taking their cue from consumers, who remain uncertain about the economy and their own situation. Builders are also finding it difficult to complete a sale because customers cannot sell their existing homes.”

Mortgage rates have jumped up to 5.59 percent according to recent data from Freddie Mac, a dramatic leap from rates well below 5 percent just a few weeks ago. Rates often move upward as economic conditions improve, and several reports over the past weeks and months have indicated some positive movement. For instance, new-home sales have grown during two of the last three months, and even though prices have dropped, home affordability is on the rise. 

Yet higher mortgage rates have home builders and others worried about a decrease in buyers. Where does the cycle end?

An index released Tuesday from the National Association shows that pending home sales, based on contracts signed in April, were up again for the third straight month. Is this a sure sign the mortgage and housing markets are headed back up? Not necessarily.

In the past the NAR’s Pending Home Sales Index has been a fairly accurate predictor of how many actual existing-home sales will take place, but in the past several months, that has not been true. There may actually be a lot more people signing contracts these days who are not able to go through with the sale.

Here’s why people want to be buying houses, according to NAR chief economist Lawrence Yun:

 “Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market. Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.”

Additionally interest rates are incredibly low and prices keep plunging in many parts of the country.

Here’s why pending contracts are not going through as much these days, Yun says:

“Mortgage processing time has increased, it is taking many months to close on those homes requiring short sales with lender approval, and some sales are falling through at the last moment.”

Diana Olick on the CNBC website  writes that in addition to slow moving bank approvals, appraisals are also a factor.

“Many appraisals are now coming in lower than the contract price. Today’s already-iffy buyers aren’t willing to hang in there when they find out the house is worth less.”

So while pending home sales are always a good sign, they may not be the sign yet we are all looking for to indicate the healing of the housing market.

Market indicators are pointing to an earlier economic recovery from the current recession, perhaps even before the end of 2009, according to statements Monday from Federal Reserve Vice Chairman Donald Kohn.

“The crosscurrents in the recent data and a bit more favorable financial news of late stand in contrast to the uniformly bleak picture of a few months ago,” Kohn said during a speech to the University of Delaware. He added that recent developments “may be an early indication that conditions are falling into place for real GDP to decline at a slower rate in the second quarter and to stabilize later this year.”

Kohn pointed to reports of home sales and new home starts starting to bottom out and even move upward again, and consumer spending leveling out during the first quarter of 2009 as indications that the recession may be over soon.

And while he did comment that the current economic downturn will probably be one of the deepest and longest since World War Two, he also saw plenty of reasons to be optimistic. “I don’t think it is premature to start to ponder the shape that a recovery — when it occurs — would be likely to take.”

Kohn warned that the recovery is not likely to be quick and dramatic, but to take place gradually, especially if Americans continue to save instead of spend until they feel more confidence in the market.

As things start to pick up again, the risk of inflation will grow, requiring the Fed to step in and adjust its spending and interest rate policies, which, Kohn assured the crowd, the Federal Reserve is fully prepared to do.

“We are firmly committed to acting in a way that preserves price stability, and we believe we have the tools to absorb reserves and raise interest rates when needed,” he said.