Thomas Oliver: Homebuyer tax credit should be extended

By Thomas Oliver

The Atlanta Journal-Constitution

Talk to mortgage bankers, brokers and housing experts and you’ll be hard pressed to find one who suggests letting the first-time homebuyers’ tax credit expire.

They are unanimous in saying the $8,000 credit has helped, though they differ on how much.

They are equally unanimous in saying that metro Atlanta’s housing market has finally stabilized. And that the last thing we need is to spook the patient or take away its Prozac by letting the credit expire at the end of next month.

Both the state’s mortgage bankers and mortgage brokers associations favor extending the credit as well as expanding it beyond first-time buyers. With a Congress suddenly concerned about what programs cost, expansion isn’t likely.

But extending the credit appears to be good politics.  Question is, is it sound economics?

Mark Vitner, senior economist at Wachovia Securities: “I am not particularly fond of the federal government meddling with the economy but when they do such measures should be targeted and temporary.”

Vitner favors extending the program despite its limited reach.

Jeff Rosensweig, Emory University economics professor, says in normal times it would be bad policy for the government to so distort the marketplace at taxpayers’ expense.

“However, these are not normal times,” he adds. Rosenweig believes it should be extended but not expanded beyond first-time buyers.

Jeffrey Humphreys, UGA economics professor, says the credit has helped Georgia more than most states, as the housing bust hurt us more than most; the average prices here are lower, so the credit equals a larger portion of the price; and, our relatively younger population has more qualified first-time buyers. He wants it extended for 12 months, for $15,000 and the limits on gross income doubled.

Everyone, it seems, is in favor of the extension, even if it hasn’t caused the normal ripple effect, where the purchase of one home causes the seller to buy another home at the next level.

That hasn’t happened because these first-time buyers are buying new starter homes, foreclosed homes or homes of folks who are getting out because they can’t afford to own a home.

Eugene James, director of MetroStudy’s Atlanta office, says 51 percent of all sales this year have been for less than $125,000.  You read that right.

Further, 83 percent of sales this year have been for homes priced under $250,000.

That market will continue to be fed by foreclosures. Some reports indicate a massive wave of foreclosures is still in front of us.

Seems to me, the first-time homebuyers tax credit has unintentionally been far better and cheaper than the government’s loan modification program.

The National Association of Realtors estimates 1.2 million buyers have taken advantage of the current credit, which equals a $9.6 billion taxpayer subsidy.  It would probably cost that much again to extend it for six months.

That’s still far less than the $75 billion loan modification program, which has seen a high recidivism rate.

Consider it a band-aid until the jobs market improves and foreclosures diminish.

-- Thomas Oliver writes a business column.  He can be reached at toliver.writeright@gmail.com