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The Cost of the First Time Homebuyers Credit-Time to Pull the Plug

Time to Pull the Plug on First Time Credit
As deadline for the first time homebuyers tax credit looms the debate as to whether to continue the credit or not is getting heated.

Trying to find answers as to whether the credit has actually created the jump in home sales is difficult. Recently a report written by Ted Gayer of the Brookings Institute provided the best look at the cost of the tax credit that I've found.

"Approximately 1.9 million buyers are expected to receive the credit, but more than 85 percent of these would have bought a home without the credit. This suggests a price tag of about $15 billion – which is twice what Congress intended – for approximately 350,000 additional home sales. At $43,000 per new home sale, this is a very expensive subsidy."

As suggested last week in my post "Will the Market Coming to a Screeching Halt on November 30th" there are a lot of factors at work in today's housing market that suggest lower prices and lower interest rates have played a significant role in the recent upswing in sales in Northern Virginia.

If it is costing taxpayers $43,000 for every $8000 tax credit that isn't a very good ROI in my book.

Posted by Cindy Jones-Northern Virginia Real Estate & Military Relocation Services on 10/16/2009 04:24 PM

Comments (10)

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10 Comments on The Cost of the First Time Homebuyers Credit-Time to Pull the Plug

OCT

Cindy... I think you're exactly right... it's long past time to pull the plug... particularly at that kind of return. In my market, we really can't see - if you're totally truthful - that it has helped the market at all.

Cindy, I recently posted on this subject from a purely anecdotal stand point (my own) that the $8000 tax credit is a cherry not a carrot. Your statistic bears out my experience and I am in complete agreement with you that interest rates and low prices in great areas are the bigger carrots! Well done! Thanks for the confirmation!

Cindy, how is it costing $43,000 per $8,000 tax credit? Yikes! I should go read your other post.

OCT

This was very ill conceived idea. The government is totally broke!

Bill-our lower priced market has been hot. However as the report stated 85% of the people buying would have bought without the credit. We've had a huge influx of investors who have also been buying up properties to flip.

SarahGray-I've been looking for more than just gut feelings for awhile myself. The majority of my buyers have not been first timebuyers and I worry that some buyers are seeing the $8000 carrot and will find out that the real expenses of homeownership may be more than they anticipated.

Patricia-I'm just not one of those who is jumping on the bandwagon for continuing the general tax credit.

Ellen-how can the US Government decide to give credit to one set of homebuyers over another? That seems to create yet another divide in our country that we don't need right now.

OCT

Hi Cindy:

I'm all for allowing it to expire.

A lot of buyers are anticipating it to be extended and not having any urgency in taking advantage of the tax credit.

Especially, if it costs the public that much to have the program, let's let it expire!

Toula-I think the tax credit has been over-hyped as the reason for the increase in sales in a number of markets. Of course with it ending just as the normal winter slow market begins is going to give those who are in favor of extending it lots of fuel for their fire.

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