The Home Buyer Tax Credit: Success or Not?

Recently, the Home Buyer Tax Credit program was extended to September 2010. As part of the American Recovery and Reinvestment Act of 2009, this program gave first time home buyers a 10% tax credit for qualified transactions. The credit was later extended to repeat home buyers. So, the question is, has this tax credit been successful in helping the flailing house market?

Not likely, says University of Chicago economics professor Casey Mulligan a recent New York Time article. First off, housing prices have yet to decrease from 2009 levels, at least that’s what the May 2010 Housing price index released by the Federal Housing Finance Agency, as well as Standard & Poor’s/Case-Shiller index. The tax credit seems to be the culprit and once this expires, the housing market will continue to fail.

Next, by examining data from the IRS, Mulligan concludes that not many tax credits were claimed in the first place. In total, there are apparently $14 trillion in owner-occupied houses in the US, plus $3 trillion in rental houses. Since the program began, only $19 billion has been claimed so far (with an average of about $6,000-$7,000 per credit claimed) and in the bigger picture, this means that only 1/10 of 1% of the total worth of housing in the US has been claimed by credits. The article supposes that many homeowners were simply not qualified or were not informed that they could claim such credits.

Mulligan puts forth another interesting point, “The credit was not designed to last more than year or two, whereas houses last decades or even centuries. Most of the value of a house accrues in the decades after the first year or two of its existence.” This means that even when the credit runs out, it has no effect on the over-all health of the market.

Read the Original Source of this Post>>