Congress has voted to extend the highly publicized first time homebuyer credit this week. The move extends the period the credit will be available past December 1st of this year to May 1st, 2010. In addition, the credit has been expanded to include both first time buyers and those who already own a home.
The original program provided a credit of $8,000 to first time homebuyers earning up to $75,000 per year, or $150,000 for a married couple. The expanded program adds a credit of $6,500 for those who already own a home and both are available for couples earning up to $225,000.
The government touts the program as having a positive effect on the economy because it provides an incentive to buy a home and boosts the struggling housing market. I think the program is misguided, wasteful, and self serving because the costs are far greater than the rewards.
First, the program is misguided because the goal is to spur the economy but the housing market has been hit hardest due to mortgage defaults. Homebuyer credits fail to help these troubled homeowners and stop the proverbial bleeding of foreclosed properties. Meanwhile, credits help mortgage lenders who have given loans to unqualified people, and over-qualified others, which have directly contributed to the current economic slump.
Second, homebuyers receive a direct tax benefit, but according to housing analysts at least 80 to 90 percent of buyers receiving the credit up to this point said they would have purchased their home anyway. Now by extending the credit to those already owning a home you lose the stabilizing effect that first time buyers have on the market, reducing the number of homes available. Combined with recent updates from the Treasury Department that tens of thousands of ineligible people exploited loopholes in the program to claim the credit and the program appears quite wasteful.
Finally, the biggest winners in the extension of this program may very well be the lawmakers themselves. First time buyers enticed by the credit have already taken advantage of it and the expansion encourages home-owning, affluent voters who don’t really need the extra help to buy another home. It really makes me wonder if Congress believes this will help boost the economy or just their chances for upcoming reelection.
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