Barry Ritholtz presents a couple of views on what the $8,000 home buyer tax credit really costs and what the proposed extension and expansion of the credit would cost. One proposal would expand the current $8,000 tax credit, which expires December 1, to $15,000 and extend it for another year. The Brookings Institute figures that 85% of home sales would occur, with or without the credit, and that the credit, therefore, is only inducing the purchase of 15% of total home sales in the period when the credit is effective. The problem is all of the home buyers would be recipients of the governments largesse.
The current $8,000 credit therefore actually costs taxpayers $43,000 per incremental sale which would not have occurred without the credit. A further Brookings Institute study suggests that the proposed extension and expansion of the credit would cost a whopping $292,000 per incremental home sale during the period. The National Association of Home Builders, which is lobbying hard for the expansion and extension for its own reasons, figures that the number of home sales would be increased by nearly twice as much as the Brookings Institute numbers, thereby reducing the cost of each incremental sale induced by the credit to a still ridiculous $131,000.
Ritholtz makes a good argument for the fact that we shouldn’t be doing any of this as it just serves to artificially levitate the value of homes to levels that are fundamentally unsupportable. The sooner we let the housing market find its own sustainable, unsubsidized level the better we will all be. For the taxpayer not taking advantage of the home buyer credit this thing is a double whammy in that the price per incremental home sale is just plain stupid and the market is delayed in finding its equilibrium level, ensuring us all of more declines ahead.
For more on the math, the underlying studies, and Ritholtz’ similar view re foreclosure abatement see his blog entry at The Big Picture.
