Did tax credit cause home decline?

Tax form with pencil pointing to "Amount you owe"

TEXT OF STORY

Kai Ryssdal: On the list of things that helped start this recession is the collapse of the American real-estate market. And so I offer you this news. Once again the housing market has confounded the experts. Sales of new homes dropped last month. Nobody was looking for a decline 'cause those sales have been rising since March. There's a school of thought that says the looming expiration of an $8,000 first-time homebuyer tax credit is the reason for the surprise, which prompted this question in our morning meeting today. How much does that credit actually help the economy? Our Washington bureau chief John Dimsdale explains.


JOHN DIMSDALE: The CEO of the National Association of Homebuilders, Jerry Howard, figures the tax credit has stimulated more than 150,000 home sales.

JERRY HOWARD: Not extending this is economic suicide. I think we'll go right back into a double dip housing recession, and the recovery will stall itself out.

Real-estate agent Dave Roberts in Sonoma County California supports extending the tax credit, but says it's having some unintended consequences.

DAVE ROBERTS: We have so many first time buyers looking for homes that they've actually driven up the price of homes at the low end of the market by more than the value of the first-time credit. As people are enthusiastically trying to get the credit, they're probably bidding beyond what the market might have supported otherwise.

Some critics worry that giving low-income people a one-time incentive to be a homeowner will only create more problems down the road.

LAWRENCE WHITE: Owning is not for everyone. That is certainly one of the major lessons of the debacle.

NYU economics professor Lawrence White figures the tax credit is, in many cases, just a subsidy for people who would buy a first home anyway. Sure it helps appliance and furniture sales. But he says it's not necessarily cost effective. The tax credit costs around a billion dollars a month, and there's anecdotal evidence the IRS hasn't been able to enforce eligibility rules.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...