The idiocy of the home buyer tax credit

Buyers alreayd get interest deduction, What's next society makes first five years of mortgage payments? http://www.washingtonpost.com/wp-dyn/content/article/2009/10/27/AR2009102703791.html Congress and the administration seem likely to extend the first-time-home-buyer tax credit. Senate Majority Leader Harry M. Reid wants to extend it through December 2010 but phase out the amount over time;... [more]

Buyers alreayd get interest deduction, What's next society makes first five years of mortgage payments? http://www.washingtonpost.com/wp-dyn/content/article/2009/10/27/AR2009102703791.html Congress and the administration seem likely to extend the first-time-home-buyer tax credit. Senate Majority Leader Harry M. Reid wants to extend it through December 2010 but phase out the amount over time; Republican Senator Johnny Isakson, a former real estate agent, wants to extend it through June but double the income limit and make it available to all home buyers. This is a bad idea. The main argument for the tax credit is that it stimulates the economy and stabilizes the housing market. Seen purely as a stimulus, the tax credit is highly inefficient. The National Association of Realtors claims that the credit created 350,000 new sales; the Calculated Risk blog calculates that this means the government is paying $43,000 for every extra house sold (since most sales would have happened anyway). According to the Wall Street Journal, Goldman Sachs estimates 200,000 new sales, implying a cost of $80,000 per marginal sale. Even at a price of $43,000, what are we getting? Given that these are first-time home buyers, and given the glut of homes on the market, most of these are financial transactions where a house changes hands in exchange for cash (and additional transaction costs). The $43,000 is not being invested; it isn't buying anything for the public, like a new road. It's just cash going into people's pockets. [less]