It was one year ago that we experienced Uncle Sam's takeover of Fannie Mae and Freddie Mac, the downfall of Lehman Brothers, the hasty sale of Merrill Lynch - the financial meltdown's most gut-churning period - and now a year later, signs of optimism in the housing market are everywhere.

Existing home sales rose in July for the fourth time in as many months and inventory totals are off their record levels of a year ago. And prices, while still declining, are no longer in free fall.

However, the looming expiration of a popular federal tax credit has some worried that the housing market may give back its recent gains, and the real estate and home building industries are pushing lawmakers to extend the incentive. Here's a look at the impact of the $8,000 first-time home buyer tax credit, and the political outlook for its extension.

Specs: In an effort to stimulate housing demand, President Obama included a tax credit of up to $8,000 for certain first-time home buyers in the $787 billion economic stimulus package he signed in February. Only buyers of principal residences who make purchases before Dec. 1 and have an adjusted gross income of $75,000 or less (or $150,000 for married couples) are eligible for the full credit.

"The thinking about this tax credit is that it helps to support sales when the job market is still a mess," said Mark Zandi, the chief economist of Moody's Economy.com.

Impact: The tax credit, increased affordability of real estate, and low mortgage rates are all factors that worked together to bolster the housing market in recent months.

The first-time home buyer tax credit "is the icing on the cake, not the cake itself," Larson said. "Falling home prices have worked their magic."

Zandi estimates that the credit will add nearly 400,000 new and existing home sales by the time of its scheduled expiration.

Extension efforts: In the face of this looming deadline, housing and real estate interest groups have stepped up their efforts to convince lawmakers in Washington to extend the credit. Sen. Johnny Isakson, a Georgia Republican who worked in the real estate business before turning to politics, has been pushing for an expansion of the credit for some time.

"December through February is historically the worst time for home sales anyway because of the winter months, so with the credit ending Nov. 30, you have a double whammy" on the market, Isakson said.

Recently, he and several other lawmakers—including Senate Majority Leader Harry Reid, a Nevada Democrat—introduced a bill that would extend the tax credit for an additional six months.

According to Zandi, "If you extended it to mid next year (...) by then the job market will be stable enough that we can allow the tax credit to expire and it won't totally submarine the housing market," he said.

Odds: Sen. Isakson believes lawmakers will eventually move to extend the credit in one form or another.

"I don't believe either this administration or the current leadership would look Nov. 30 in the eye and let this thing die," he said.

White House spokesman Robert Gibbs said this week that the administration is evaluating the credit's impact and will make a recommendation to the president, the Associated Press reported. The outlook for an extension appears to have brightened. Scott Talbott, a top lobbyist at the Financial Services Roundtable, put the odds of its extension at 50-50 earlier this week, but he said that the chances improved to 75-25 after Reid endorsed the six-month extension.

Still, as lawmakers remain consumed with other matters, such as healthcare reform, action on the tax credit is unlikely to take place until the expiration date nears, Talbott said.

"Congress works best on deadlines and crisis," he said. "And we sort of will have both with this one."

James Tibbetts is an associate broker for West Seattle Windermere and can be reached at 206-932-2550.

Full disclosure: James Tibbetts is an advertiser with the West Seattle Herald.