Realtors, home buyers and sellers are rushing to complete sales agreements before the tax credit for home purchases expires this week.
Home buyers must have a deal by April 30 and close by June 30 to qualify for the federal tax break, up to $8,000 for first-timers and $6,500 for those merely moving to a different residence.
Though the Treasury Department and the real estate industry have termed the program a success, helping 1.8 million people buy homes, many tax policy experts say it has been singularly cost-ineffective: most of the $12.6 billion in credits through end of February was collected by people who would have bought homes anyway or who in some cases were not even eligible.
The credit has caused a surge in sales and has been widely lauded for helping to stabilize prices. In places like Lafayette, Ind., where the number of homes sold in March was up 48 percent over last year, real estate agents say they have been inundated with buyers like James and Aubrey Green, students at Purdue University, who said the credit had persuaded them to jump into the market.
“We were happy in our apartment, but $8,000 was just too much to pass up,” said Mr. Green, 29, who shopped furiously with his wife for two months before signing a contract in March to buy a three-bedroom ranch.
“We bid on a couple places that didn’t work out,” he said, “but we always made sure we had a backup plan because we didn’t want to miss the deadline for the credit. And when we finally agreed to a contract, it was this huge relief.”
For every home buyer like the Greens, real estate agents say there are at least three others who collected the credit even though they would have bought without it. That means for each new buyer who was truly lured into the market by the credit, the federal government paid more than $30,000.
In addition to legitimate buyers, tens of thousands of people who collected the credit were not qualified. An audit by the Treasury Department’s inspector general released last year found that hundreds of millions of dollars in credits went to people who had not yet bought homes or who were not first-time home buyers, as the program initially required.
Hundreds of others who received the credit were not old enough to sign a binding contract, the audit found, with some as young as 4 years old.
“There’s a political appeal to offering government aid to homeowners because it affects a lot of people,” said George K. Yin, former chief of staff of the Congressional Joint Committee on Taxation, who now teaches at the University of Virginia. “But if you weigh the cost and the results, you have to wonder whether it’s a failure of imagination.”
The home buyers’ credit was actually an amalgam of three separate programs. It began in spring of 2008 as a $7,500 tax credit that taxpayers were required to repay on their tax returns over a 15-year period.
After the financial crisis that fall and taxpayer anger over the hundreds of billions in bailout money being directed to banks and Wall Street firms, a broad subsidy for middle-class homeowners had wide political appeal. So Congress sweetened the plan — dropping the repayment requirement and increasing the credit to $8,000 — and included it in the economic stimulus bills.
Last November, with the residential market beginning to rebound, Congress extended the period for five months and added a $6,500 credit for existing homeowners looking to relocate.
After the number of homes sold in January and February dropped to record lows, sales rose 6.8 percent in March from a year earlier, as buyers raced to cash in before the credit expired. Nearly half of all March home sales involved first-time buyers, according to the National Association of Realtors.
“It’s true that a lot of people who got the credit might have bought without it, but they might have bought in 2012 or 2013,” said Senator Johnny Isakson, a Republican from Georgia, who worked for 30 years as an agent. “This got them to buy in 2009 and 2010, when we needed to shore things up.”
But the program was open to widespread misuse. The first two phases of the credit did not require taxpayers to prove that they had actually bought a house. The Treasury’s inspector general found in October 2009 that the I.R.S. had allowed $139 million in credits to people who had not yet bought homes, and $479 million to taxpayers who were not first-time buyers.
The I.R.S. resisted proposals to require proof that a home had been bought, with officials saying that the additional paperwork would be too onerous because it would prevent returns from being filed electronically. Tighter restrictions were nonetheless enacted: as of last fall, those claiming the credit were required to file a paper return and provide documentation that they had bought a house.
I.R.S. officials say that examiners found more than 70,000 taxpayers who had improperly claimed the credit, but were unable to say how much money had been recovered. Frank Keith, an I.R.S. spokesman, said that given the complexities of the program, “we did an effective job” administering it.
Some tax policy experts suggest that the federal government might have used the money more effectively by creating a program to help unemployed homeowners stave off foreclosure.
“If you tried to address the supply side of the housing market rather than the demand side, you could target your resources more effectively,” said Roberton Williams, an analyst at the Tax Policy Center. “And you’d also have the benefit of helping to keep people from losing their homes instead of subsidizing people who were going to buy anyway.”
But other economists say that, whatever its inefficiencies, the home buyers’ credit had a valuable effect on the psychology of millions of Americans who were alarmed to watch their largest investment lose value.
“The tax credit helped to stanch the price declines, which had substantial benefit for the entire economy,” said Mark Zandi at Moody’s Economy.com. “The home is still the largest asset on most people’s balance sheet, so when prices are falling, nothing works for most families. But now people can take a deep breath and think clearly again.”
By DAVID KOCIENIEWSKI New York Times April 26, 2010
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