Home-Buyer tax credit: should it expire?
September 29, 2009 · Tagged with Real Estate
The $8,000 first-time-home-buyer tax credit that’s been helping juice the housing market is set to expire on Nov. 30. A lot of people don’t want to see that happen. Since some of those people are in Congress, there’s a decent chance the credit will be extended into 2010. Among the bills floating about are ones that would grow the amount to $15,000 and make all home buyers – not just those who haven’t owned before – eligible. One policy-analysis shop puts the odds of some extension at 2 to 1, despite a cost that could run as high as $50 billion to $100 billion.
This makes little sense. Since the credit first passed last year, the logic of our financial rescue has evolved. The panic phase – the time when so many felt government had to act boldly and at any cost – has passed. Slowly, the free market is easing back in. Consider the federal guarantee on money-market mutual funds, which was slapped together a year ago to prevent a run on a key part of our financial system. That backstop expired on Sept. 18. It wasn’t renewed.
In most realms, in fact, the return to normality is under way. Banks are paying back TARP funds. Cash for Clunkers has faded into the sunset. The chairman of the Federal Reserve Board has declared the recession over, and home prices are inching upward.
So why does the home-buyer tax credit persist? First, because of fear. Falling house prices, necessary though they were, triggered a lot of the mess we’re in, and the thought of quashing a nascent recovery naturally leads to thoughts of another round of repercussions. Home sales have been growing for months, but a one-time pullback – like the one we saw in August – can still send chills down spines.
There’s also political reality. Set aside for a moment the formidable lobbying power of real estate agents and homebuilders, as well as the fact that one of the Senate’s biggest tax-credit boosters used to sell houses for a living, and you’re still left with homeowners – also known as voters. Many of them have long asked their elected representatives why ordinary folks aren’t getting more government help. A house-related tax break – whether or not it’s good policy – sure does play well.
But this tax break probably isn’t good policy, especially now that we seem to have left the darkest part of the housing-market woods. Here are the numbers. The IRS says 1.4 million first-time buyers have benefited from the credit so far; the National Association of Realtors thinks that figure will hit 1.8 million before the end of November. Meanwhile, a number of groups have estimated how many of those people wouldn’t have bought houses had it not been for the tax break – about 350,000 or 400,000. In other words, some 80% of buyers would have bought anyway. In many markets, prices have fallen so far that houses are affordable in a way they haven’t been in years – that’s a reason to buy even without a gift from the government. We’re giving up tax revenue on $11 billion that we don’t need to.