Home Tax Credit: All Smoke and Mirrors?

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The conventional wisdom has it that the soon-to-expire government tax credit for home purchases was a success. After all, it drove people back into the real estate market and helped to ignite a fire under a still-nascent recovery.

But suppose the conventional wisdom is wrong? Suppose it was all really smoke and mirrors? Suppose most of the recent home buyers were going to buy a house anyway, with or without the credit; while many others weren't even old enough to buy a house, which didn't stop them (or their parents?) from claiming the government credit.
A rather disturbing New York Times article connects the dots of some previously reported material and paints a not very pretty picture of a government program that was "successful" at some levels, but overly costly and not targeted at the people who could have used help the most.

The program which wraps up at the end of this week (though home-buyers have til the end of June to close the deal to qualify for the credit) gives $8,000 to first-time buyers and $6,500 to those moving up to a new home (provided they lived in their old home at least five years).

The program to date, says the Times, quoting government and industry experts, has helped 1.8 million buy homes by allowing more than $12 billion in government tax credits.

But the Times says that for every home-buyer who was actually propelled into the market because of the credit, "at least three others" would have bought without it! That translates, says the paper, into more than $30,000 of government money for each buyer who was "truly lured into the market by the credit."

If that weren't troubling enough--and it is--how about this: "Hundreds of others who received the credit were not old enough to sign a binding contract ... with some as young as 4 years old," says the paper, citing a Treasury Department audit last year.

Some people claimed the credit who didn't even buy a house because, initially, there was no proof needed that they had actually done so!

What all this would suggest is that the end of the program should not really have much of an impact on home purchases. Those who are bent on buying will probably buy and those who are not--or can't--won't.

Charles Feldman is a journalist, media consultant and co-author of the book, "No Time To Think, The Menace of Media Speed and the 24-hour News Cycle." He has written about real estate related issues for several years.
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