I’ve received many e-mails in the last few days, mostly from mortgage companies, alerting me that the home buyer tax credit has been extended and expanded. There’s no doubt that the tax credit, originally set to expire at the end of November, 2009, was successful in getting more first-time home buyers to take the plunge. The tax credit did create some sales that otherwise would not have happened, putting $$ in the pockets of Realtors, appraisers, home inspectors, pest control companies, title insurance companies, etc.
So even after the rampant fraudulent claims came to light, there was not much doubt that the thing would be extended and possibly even expanded to include more than just the first-timers. New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time home buyer credit.
The new law:
- First timers continue to get an (up to) $8000 subsidy for buying a home.
- Long time home owners can get a $6500 subsidy for replacing their primary residence.
- The income levels were raised so even more subsidies can be handed out.
But is the government giving $$ to home buyers who would have bought a home regardless of the subsidy? For sure it is, and it will continue to do so now that the thing is even bigger and will last longer. It hard to say how many of this year’s first-timers would have bought anyway. Prices were way down, inventory was up, making 2009 a strong buyer’s market.
An economist with the Brooking’s Institute estimates that over 85% of buyers that claimed the credit would have bought anyway. Wow! He also estimates that the true cost of each sale in which the buyer claimed a credit was $43,000 because of the buyers who would have purchased anyway! (read it).
So maybe it is a poorly targeted subsidy, rewarding many for what they were already planning on doing. But the fact is, the tax credit is there, at least until the end of April, 2010.
I think the first time home buyers credit is great and I’m glad they extended it. It sparks our the market, when we are at a point where a spark is extremely needed.
But if 85% of buyers who claimed the credit would have bought regardless? That’s an expensive spark! That $$ may have been put to better use within the housing industry.