According to the way I understand a new report from Goldman Sachs, the Home Buyer Tax Credit doesn’t help home buyers at all, since it has just increased the sale price of homes by the tax credit amount. That may be a boon to home sellers that have homes in the lower price ranges that are impacted by the tax credit.
Also, while the NAR optimistically claimed that the tax credit caused 350,000 incremental homes sales, Goldman says the number is actually closer to 200,000 home sales. If Goldman is correct, that means each incremental sale actually cost the tax payers over $75,000!
The worst part of all this, when considering the extension of the credit that has already passed the Senate, is that the credit was most effective right after it went into effect with a surge of new sales right at its implementation. So, the extension will have an even lower rate of new sales attributable to the tax credit going forward.
Goldman Sachs estimates that the credit resulted in 200,000 sales this year, but that many of those sales were front-loaded—driven by a surge in sales shortly after the tax credit took effect. The simple extension “should result in fewer incremental first time purchases than the first round of the credit did,” writes Goldman economist Alec Phillips.
While the tax credit won’t reduce excess inventory, the incentives could keep prices up because “potential sellers are likely to incorporate a fraction of the credit amount in their sale price—with the knowledge that the majority of buyers will qualify for either the first time or move-up credit,” writes Mr. Phillips.
Government efforts to stabilize the housing market have helped boost prices by around 5%, and around 1% of the boost is attributable to the current tax credit, according to a separate Goldman report last month.
In September, existing owners accounted for around 60% of sales, which means that around 42% of all sales last month would have been eligible for the new tax credit, by Goldman’s count, in addition to the 30% of sales that went to first-time buyers. – Wall Street Journal
