Is Tax Credit Turning D.C. Into Seller’s Market?

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    NEWSLETTERS

    TK
    AP

    I’ve spent a lot of time blogging about the first-time homebuyer tax credit recently, and last week, even devoted an entire column to the subject. My feeling is, it’s out there — I might as well inform people how to take advantage. I don’t know if the posts came off sounding too cheerleader-ish. But, in case they did,  here’s the flip side of the credit: A lot of people consider it unnecessary, believing the recent drop in home values would have pushed many buyers back out into the market without the extra tax incentive. The credit, essentially, was an extra dollop of whipped cream on top of the cocoa. Lovely. But not necessary.

    In Sunday’s Washington Post, professor Joseph Gyourko of University of Pennsylvania’s Wharton School, made another valuable point about the ill effects of the credit in his piece“5 myths about home sweet homeownership.” He argues that the credit is creating competition in areas where the market should still be settling — like here:

     

    2. The homebuyer tax credit makes buying a house more affordable.

    Not necessarily. Just because you got an $8,000 tax credit toward the purchase of a home doesn’t mean that you actually saved $8,000. In areas where there is strong demand for housing and the supply of new housing is limited — including the Washington metro region — tax credits may result in the bidding up of home prices. In other words, the program has probably led to higher prices in these areas than we would be seeing without it. This means that some of the benefit of the tax credit is being passed on from homebuyers to home sellers.

    As I wrote last week, the extended credit now applies not only to existing homeowners, but also people making well past moderate incomes: The current income limitation for a single person is $125,000. The previous restrictions—$75,000 for a single person—surely shut out people from buying in some of the city’s most exclusive neighborhoods. Will this new credit open up the flood gates?

    Is the Tax Credit Turning D.C. Into a Seller’s Market? was originally published on Housing Complex on Nov. 16, 2009, at 1:15 pm