As the clock ticks down on the final hours of the homebuyer tax credits, critics of the policy are celebrating their demise even as housing industry lobbyists scramble valiantly for an eleventh hour legislative life boat that will extend the credits another three months.
With almost no hope of getting another extension that would allow some 180,000 buyers to close, lobbyists are looking for a vehicle that could clear the Senate floor in the next two days. Last week Senate Majority Leader Harry Reid pulled from the floor legislation extending unemployment benefits that included the homebuyer credit extension.
Buyers who need to extension to get the credits met the contract deadline of April 30 but cannot close by the June 30 deadline. Many are short sales, which take longer to close than standards transactions. Others are homes still in construction. A large number of slow closings reflect the delays facing many buyers today who encounter delays with financing, appraisals and other closing services.
In a new article published last week in the Brookings’ Center tax Policy Notes, Howard Gleckman writes, “For two years, the homebuyer credit has been in the running for Washington’s worst tax policy idea. Now, new evidence about this bit of legislative bilge suggests it may be time to retire the trophy.”
Recounting the $115 billion price tag, the mixed marketplace results, Gleckman cited the frauds reported by the Treasury Department’s inspector general last week. Some 1295 prisoners who applied for more than $9.1 million in credits and more than 2,500 got almost $18 million for homes they bought before the credit was effective. In all, the IG unearthed 14,132 people who received erroneous credits of $17.6 million.
“The hardest bit to swallow is not so much that the homebuyer tax credit is a boondoggle. It is that it was a totally predictable waste of money. Economists warned Congress in 2008 that the credit would do little more than shift timing decisions by a few months. But lawmakers ignored the advice again and again. Remarkably, the Senate may be about to give buyers still more time to close on homes they put contracts on before April 30. That way, they can squeeze the last few dollars out of a failed credit,” Gleckman concluded.
Gleckman’s opinion piece has been republished in whole or in part by the Christian Science Monitor, Forbes, the Wall Street Journal and the New Republic. Gleckman is a senior resident fellow at The Urban-Brookings Tax Policy Center, and former senior correspondent in the Washington bureau of Business Week.
Elsewhere, views are mixed on the value of the credits.
“It’s unclear whether the tax credit helped spur the real estate market, or just shifted demand. Despite low interest rates, some experts think the market will stay down now that the tax credit is gone. Others think the credit was a bridge that kept the real estate market from falling even further,” wrote the Palm Beach Post staff in its Opinion Zone last week.
“Personally, I’m glad it’s over,” wrote Jay Thompson, the popular Phoenix Real Estate Guy, last month. “I’ve never been a fan of the government trying to prop up a free market. While we have had several clients qualify for the tax credit, none that I’m aware of bought a home because of the credit.
“And that is a good thing.
In my opinion, about all the tax credit did was pull in sales that would have occurred in the near future. So we wound up robbing Peter to pay Paul. Yeah sure, a few people somewhere bought a home that they wouldn’t have (which was a bad idea), thereby (in theory) “stimulating” the housing market - but at what cost?”