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The problem, and expansion, of the new homeowner tax credit

In a 403-12 vote, the House overwhelmingly backed extending and expanding the new home buyer's tax credit. Where before only first-time buyers were eligible for the $8,000 credit, the expansion will make a $6,500 credit available to homeowners who have lived in their house for at least five years.

A lot of economists aren't happy with this, and their displeasure is encapsulated in the story of one Ezra Klein. Like a lot of renters, Klein took a look at the housing market this year and decided it was a good time to move from renting to owning. A few weeks ago, he closed on a new home. As a reward, taxpayers are going to give him $8,000. That's good for Klein, but the tax credit had nothing to do with his decision to purchase a new house. Taxpayers just wasted $8,000 trying to convince Klein to do something he was going to do anyway.

There's no way to separate the people who would buy a new home in the absence of a tax credit from the people who would not buy a new home in the absence of a tax credit. Which means a lot of money gets tossed down the drain, and not in a particularly progressive fashion (though the credit does begin to phase out at $70,000 in income). All stimulus efforts have a certain amount of leakage -- tax cuts aren't spent, building projects purchase Chinese steel, etc. -- so the question is whether a given policy is more of a stimulant than other measures. And I haven't heard that many economists speaking in defense of this credit.

By Ezra Klein  |  November 5, 2009; 4:37 PM ET
Categories:  Economic Policy , Economics  
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Comments

Well yes, but I would argue that our Mr. Klein will take his $8,000 and buy stuff for his home with it that he may not have bought had he not had the credit. Creating a different kind of economic stimulus, but a stimulus none the less.

I am not a big fan of these kinds of credits. But if you are going to give away money, you could do worse.

Posted by: luko | November 5, 2009 4:43 PM | Report abuse

I agree with Luko. Ezra, wait until you move into your new place and start deciding you need to some minor upgrades or buy some furniture. I'm going to make a pretty good bet that you'll spend a good bit of that $8k, and probably be a little more willing to do so since its coming from Uncle Sam.

Posted by: truth5 | November 5, 2009 4:46 PM | Report abuse

I see trickle-down economics is alive and well in the Democratic party.

Posted by: bmull | November 5, 2009 4:53 PM | Report abuse

Couple of thoughts:

1. We're almost sure to make that $8,000 back in people like you making trips to Home Depot, et al. The logic of your argument works only if you bought a home, and subsequently bought nothing else, which anyone who has ever moved into a new home knows is totally out of the question for the vast majority of new homeowners.

2. What else are legislators to do? This is akin to saying nobody should do stimulus because people will just save the money. Tomorrow we're going to get an unemployment report probably of double digits for the first time in decades. Congress cant just sit around saying we're all screwed.

Posted by: zeppelin003 | November 5, 2009 4:54 PM | Report abuse

Awesome... so if you have never bought a house, you come out great. If you have owned a house for five years, you come out very well.

And if you bought at the worst possible time (within the last five years), you get nothing.

Beautiful.

Posted by: davel454 | November 5, 2009 4:58 PM | Report abuse

This housing tax credit and cash-for-clunkers could be justified as a means of incentivizing people to buy when they might not otherwise have done so. However, the moment for that has passed. The housing market might still be stagnant or in a shallow decline, but it's not cratering.

However, I think we've been at the point for a long time where buying a house is considered some kind of civic duty, and now the voters want their butts kissed for doing so, and politicians are all-too-willing to oblige.

Posted by: constans | November 5, 2009 4:59 PM | Report abuse

As someone who it actually convinced to buy a house - I agree that its a bad idea.

Its stimulative effect probably won't be much more than simply giving random yuppies like myself $8,000. As you said, many of us would have bought a new home anyway. To the extent its effective, its also profoundly regressive, I would think - unless you were already planning to buy a home, only people at the top end of the credit can raise enough for the down payment over just a few months.

I'm also worried that we're simply reinflating the housing bubble.

Posted by: jesmont | November 5, 2009 5:01 PM | Report abuse

The problem here isn't that $8,000 stimulus checks is a bad idea, it's that only giving those checks to people who recently bought or are about to buy homes is a bad idea. The tax credit is just a transfer of wealth from renters to buyers. As a renter, I don't like that very much. Good to know that Democrats (even the Blue Dogs) and Republicans alike can unite to give away money in arbitrary and unhelpful ways, while serious attempts at effective stimulus are furiously shot down.

Posted by: etdean1 | November 5, 2009 5:04 PM | Report abuse

Right on jesmont about the artificial inflation of housing prices. At least cash for clunkers got old and inefficient cars off the road.

Posted by: etdean1 | November 5, 2009 5:06 PM | Report abuse

There's a key piece here that is completely missing when economists describe this, its understandable because they're academics, but when the vast majority of people move from an apartment into a house or condo, they dont simply pack up their current home move into a new place and buy nothing else, and pocket the tax credit. Thats almost absurd, though I'm sure some minute number of people will do that.

The way the vast majority of people live is to move to a new home, and buy new beds, new rugs, decorate the place ad infinitum, get a new flatscreen TV, the works. And to give them a tax credit to encourage all that consumer spending is exactly what we need, regardless if the Ezra Kleins of the world benefit at the margins.

I mean, if there was a way to means test out for anyone who is single and childless maybe you'd save some of it, but thats more trouble than its worth, especially when (for better or worse) we're trying to get consumers into the stores before they all shut down.

Posted by: zeppelin003 | November 5, 2009 5:09 PM | Report abuse

Does it matter? Stimulus requires the government spend money. High multipliers are better, but otherwise it doesn't matter so much. Hell, the government could send trucks around dumping money on the streets - it would work.

Posted by: tyronen | November 5, 2009 5:09 PM | Report abuse

The problem here isn't how stimulant this policy is, it's that we're stimulating something that is still recovering from a bubble, which is foolish.

Posted by: slantedview | November 5, 2009 5:19 PM | Report abuse

I should also like to point out, many economists (such as Dean Baker) accurately identify the housing bubble as the single factor without which our recent economic turmoil could not have happened. Any policy that looks to sustain the housing bubble further is idiotic.

Posted by: slantedview | November 5, 2009 5:24 PM | Report abuse

Well, except Case-Schiller has spiked up, and there's really not a good explanation as to why other than the tax credit. The price-rent ratio isn't yet to historic levels, and low interest rates don't seem to be enough to explain it. Now, is it a good idea to in effect create a housing mini-bubble? Maybe. Maybe it's a good idea to get off the ledge by steps, instead of all at once. It might soften the fall. But right now consumers aren't seeing their wealth disappear and lenders aren't seeing their portfolios dissolve away. That will probably change and housing will find a new bottom, but by then hopefully others things will be rolling in the economy.

Posted by: wagster | November 5, 2009 5:26 PM | Report abuse

What jesmont and others said: the problem here is that this policy is a house-price subsidy. House prices are set by the marginal buyer, the marginal buyer right now qualified for this credit under both old and new structure, so ceteris paribus house prices have adjusted up from their unsubsidized level.

I do not think it is a good idea to subsidize house prices in the current environment.

Posted by: wcwhiner | November 5, 2009 5:39 PM | Report abuse

Of course the FTHB tax credit has problems.

Of course it did indeed help to bring some buyers forward in time, and even helped a few take the plunge altogether (a small but signficant part).

It helped brake the downward slide in prices, which needed to go a little further, and which would have helped sink Citi and BofA a little further into the mud, etc.

And the prices will decline in real terms over time anyway, etc.

But...new home buyers spend money.

We did, and we were trying not to.

It costs.

They spend.

So it's really just another version of stimulus, which is about buying time for change to happen with less pain.

Posted by: HalHorvath | November 5, 2009 5:46 PM | Report abuse

"And I haven't heard that many economists speaking in defense of this credit."

That's because they don't have as many typical middle-class experiences as average Americans do.

It does help to be in the middle class, and not with tenure or other forms of insulation, to have a sense of typical American thinking and experience.

Posted by: HalHorvath | November 5, 2009 5:48 PM | Report abuse

Come on Hal, economists have plenty of middle class experiences. And what about middle class people who rent their apartments and don't own homes? The problem with this form of stimulus is that (a) it's arbitrary in that only recent or soon-to-be homeowners get the benefit, (b) it artificially props up housing prices, and (c) while I don't have any numbers on this I can anecdotally say that the credit is probably used as a one time payoff to the mortgage than it is to purchase extra stuff. Unless you can justify a payout from people who don't own homes to those that do, this policy is ridiculous.

Posted by: etdean1 | November 5, 2009 5:59 PM | Report abuse

"The way the vast majority of people live is to move to a new home, and buy new beds, new rugs, decorate the place ad infinitum, get a new flatscreen TV, the works."

That's true, but if the tax credit is basically propping up house prices (see: Case-Schiller) or serving as a subsidy for downpayments or closing costs, then that $8,000 will be absorbed into the mortgage.

In practical terms, you'll be spending at Home Depot or IKEA or Wal-Mart or Goodwill, but given the additional costs that generally accompany home ownership -- a higher mortgage payment than rent, perhaps higher utilities and insurance payments -- I'm not convinced that it has that big a stimulative value outside the housing sector.

Johnny 'The Realtor' Isakson will love it, of course, since he's up for re-election (or a bid at the governorship) in 2010. And I'm sure that incumbents from both parties will be waiting for their credit in the form of donations.

I'm also not convinced that as election year comes, they'll have the guts to turn off the spigot, and if it the buyer credit becomes as entrenched as the mortgage interest deduction -- another element in the bubble -- that's a real problem.

Posted by: pseudonymousinnc | November 5, 2009 6:11 PM | Report abuse

Let me expand upon that last comment.

The price/rent ratio in DC is around 20, which is still bubble territory. So, let's take one Ezra Klein, who has gone from renting a shared (though not a Flop) house with three other people to a place of his own.

Being a bright fellow, he will have already squirreled discretionary dollars from his journalistic salary during the rental years for the downpayment and closing. But in the months and years to come, even with the $8,000 tax credit for furnishings and improvements, my guess is that a chunk of the change that he would have spent on D.C.'s dining establishments, farmers' markets and concert venues as a renter will be departing from his bank account on the first of the month to pay the mortgage and bills at Casa Klein.

That's stimulative for the bank, the insurer, the utility companies, etc., but I'm not sure if it ends up as a net plus.

Posted by: pseudonymousinnc | November 5, 2009 6:24 PM | Report abuse

Another question is how much Ezra's house would have cost, had the tax credit not been available?

I assume that the presence of such a tax credit would drive up the market price for a home, depending on the likelihood that a first time buyer will buy it.

Posted by: shanehuang | November 5, 2009 6:38 PM | Report abuse

*So it's really just another version of stimulus, which is about buying time for change to happen with less pain.*

I agree, but I think that the extension is ridiculous. We're going from "temporary stimulus" towards "entitlement."

Posted by: constans | November 5, 2009 7:16 PM | Report abuse

etdean1, the economists that have the most influence also have the most insulation from ordinary conditions, which isn't necessarily meaningful most of the time. It also isn't meaningful whether "many" or "few" economist agree on something, unless the agreement is across the spectrum, and even then it isn't a guarantee the view is correct.

But I actually agree with you generally. See:
http://findingourdream.blogspot.com/2009/09/right-way-to-structure-cash-for.html
for more about

Posted by: HalHorvath | November 5, 2009 7:22 PM | Report abuse

This is where Klein's altruism turns tail and shows its redness. He'll take the deduction, even admitting he doesn't need to.

{{shrug}}

So, that's $8,000 more debt the feds will rack up. How much should we raise Klein's tax rate to cover it? Or, to put it in broader terms, how much additional innovation, entrepreneurial activity, and fruits of people's endeavors should be sucked out the greater economy to cover the cost of this newest of versions of government largess?

Posted by: msoja | November 5, 2009 7:26 PM | Report abuse

pseudonymousinnc, that's a high ratio, 20, (presuming you mean annually). At least 1/3 too high imo. I calculated once the true break even point for most people is on a monthly ratio in the neighborhood of 140 (about 12 on the annual basis).

About the economic effects of buying a home *now* (as distinct from say 2006), I think if one can afford it (say total payments w/tax/insurance are under 28% of monthly gross), then....it's a wash economically.

Because the seller then has funds for other purposes, for instance, etc.

I've many posts on my blog that are related to stimulus.

Posted by: HalHorvath | November 5, 2009 7:27 PM | Report abuse

It is probably true that some proportion of buyers will take the credit and buy more stuff. For others though, it's another enticement to get into an enterprise that they can barely afford.

Here's the deal: If you can't afford to be a homeowner, you can't afford to be a homeowner. Encouraging people who can't afford it pumps up house prices while setting them up for years of financial problems.

I would rather have seen Congress couple the First Time Buyer credit with a phaseout of the mortgage interest exemption.

Posted by: Athena_news | November 5, 2009 7:36 PM | Report abuse

Or, better yet, which worthy area of government spending should be cut to the bone to offset the debt racked up with Klein's claiming of the tax credit?

Who will name the poor child condemned to go without food for several years so that Klein can count himself an owner?

Such are the idiocies of the governmental calculus.

Posted by: msoja | November 5, 2009 7:37 PM | Report abuse

"Or, to put it in broader terms, how much additional innovation, entrepreneurial activity, and fruits of people's endeavors should be sucked out the greater economy to cover the cost of this newest of versions of government largess?"

msoja, this is a very complex question, with many pieces, some of which usually are presumed (but need examination, regardless of one's angle of approach).

Let me open a couple of the assumptions into open questions.

We know (and I expect agree) that current deficit spending will eventually be paid for by all taxpayers through some combination of higher taxes and/or inflation, over time.

But, here's a more open question: just how large will that economy be, say in 2016. In other words, as the bill for current spending gradually becomes due, just how large will our incomes be?

Well, that depends on how large the entire economy is. Because even for the rich, their absolute level of income depends on the size of the entire economy. For instance, if more people have jobs, then more can afford to by Windows 8 or 9, and put a bit more of a dividend into Bill Gate's pockets, etc., etc. So both the rich and the poor and the middle class depend for their income on the size of the entire economy. When the economy is bigger, all of us have more customers around to buy our goods or services we sell to make a living.

But the size of the future economy depends on what level it begins to grow from and how fast it grows.

The stimulus affects where the bottom is (making that bottom higher in GDP).

The rate of growth depends on things like innovation (which creates new products people want and makes them save a little less and buy a little more, etc.), and disposable income.

Disposable income as before depends on the size of the overall economy.

See where this is going?

In stimulus, the longer term results depend on just how the money is "invested."

Is it invested in things that increase future economic activity?

Posted by: HalHorvath | November 5, 2009 7:53 PM | Report abuse

athena, I agree that if you can't afford a house (say within 30% of monthly gross income), then you can't afford it.

But, since the 8,000 tends to add to the selling price, that's mostly a wash. Buyers still have to qualify, and they have to qualify depending on income and assets, and by more conservative standards than we've had in many many years.

Posted by: HalHorvath | November 5, 2009 8:07 PM | Report abuse

"Buyers still have to qualify, and they have to qualify depending on income and assets..."

And they can use the credit as part of their already low down payment on an FHA loan

Posted by: Athena_news | November 5, 2009 8:21 PM | Report abuse

--"The stimulus affects where the bottom is (making that bottom higher in GDP)."--

The government can't beat the market, Hal. All it can do is distort and pervert it.

Klein paid an artificially high price for his house because of the tax credit. (If he financed the bulk of it, his payments will also be higher for an extended period of time than they otherwise would have been. What's the financing on that $8,000 over twenty years? Thirty years? Closing costs were higher, etc. His property taxes may be higher, too. On a house with a government inflated price!) As soon as the government-induced incentives expire or are repealed, home prices will drop commensurate with the lost artificial incentives. And then Klein's house will be worth much less than he paid for it. He might be okay with it, if he can afford it, but the point is, all the government fol de rol doesn't amount to squat. The market is still going to find the bottom that is still there waiting for it. All the government is doing now is postponing the inevitable, and prolonging the misery of those who need the certainty that artificial incentives corrupt. AND there's still that stupid U.S. national debt, with interest, that has to be repaid.

Of course, it might occur to some brainy politician (Barney!) that the $8K credit should become a permanent fixture of the American home buying landscape, but that would just completely wreck your theory about paying for today's expenditures with tomorrow's dollars, wouldn't it?

Posted by: msoja | November 5, 2009 9:35 PM | Report abuse

Yes, so roughly, the selling price is higher because of the $8000, perhaps for instance $5000-$6000 more than it would have been, and the FHA buyer has up to $8000 more to put down. Those two cancel each other out to some extent. They buyer still needs to qualify on the basis of income for the remainder, as they would without the credit.

Posted by: HalHorvath | November 5, 2009 9:43 PM | Report abuse

My feeling is that sellers get most of the benefit of the credit. Buyers only to the extent that it helps them qualify (if at all). The higher property tax is, as you point out, temporary, and indeed hits the whole neighborhood with the next assessment.

All in all, the credit is only buying time. Propping up house prices some, temporarily, making houses easier to sell. Basically acting as a stimulus to spend more. Most of the $8000 will get spent for most cases. In the big picture it's just a general stimulus, anti-deflationary, like dropping money from a helicopter, except...some people benefit more than others. Everyone benefits a little, with more general spending going on than without it, propping up the whole level of consumer spending some. Even renters get a slight benefit in that some of the empty houses on the market get filled, often leaving an extra rental space open somewhere, depressing rental prices. So even renters get a bit of the broad money.

I could make better forms of stimulus. This one is mostly about the propping up of the banks we've been doing for what seems years now.

But let's get to a question you'd like better: what if *none* of these stimuli had happened? Well, when someone is honest, they usually have to say they're doing some guessing on this one. My guesses and logic say that when a big bubble bursts, the downward moves has momentum that *does not* brake easily. It keeps going down past the wash out of the fake part of the economy, and washes out a lot of previously strong economy around since long before the bubble. Old companies get destroyed not just here and there, but in mass. Nothing really stops the downward spiral but a profound psychological break, usually needing something tangible to believe in, like a "bank holiday" or something that let's people believe there will be a change.

Posted by: HalHorvath | November 5, 2009 9:55 PM | Report abuse

--"like dropping money from a helicopter"--

No. It's dropping *stolen* money from a helicopter, and the people it was stolen from are hurt in the act of theft.

You're flailing, Hal. The government can't beat the market with stolen dollars.

What about the people who want to buy a house but don't qualify for the government giveaway and find themselves looking at inflated prices caused by the same giveaway?

It all falls down to simple supply and demand, and no amount of pulling rabbits out of hats will change the rudimentary economics of it.

For an eye opener, check out...

http://www.bloodhoundrealty.com/BloodhoundBlog/

... a group of realtors *begging* the government (amongst general blogging) to drop the tax giveaway. They recognize the economics at play. They recognize the damage being done. One of them (at least) is refusing to help buyers wanting to take advantage of the tax credit. That's honesty. That's putting one's principles into play, and it's admirable.

Posted by: msoja | November 5, 2009 10:39 PM | Report abuse

nah, any such stimulus had these types of problems visible from the begginning. Nothing hard to see ahead of time. I have a post mentioning the way to do a buyer's incentive program. I have no trouble with Keynesian stimulus in the very occasional instance (credit collapse leading to debt deflation depression) when its needed under fiat money, perhaps about 1-2 times/century, who know. All of this is pretty well understood a long time ago. Read Irving Fisher, then come back if you like to discuss more.

Posted by: HalHorvath | November 5, 2009 11:17 PM | Report abuse

Here's DeLong's take:
"It is worth stepping back and asking: What would the world economy look like today if policymakers had acceded to the populist demand of no support to the bankers? What would the world economy look like today if Congressional Republican opposition to the Troubled Asset Relief Program (TARP) program and additional deficit spending to stimulate recovery had won the day?

"The only natural historical analogy is the Great Depression itself. That is the only time when (a) a financial crisis caused a widespread, lengthy, and prolonged reinforcing chain of bank failures, and (b) the government neither intervened nor passed the baton to a consortium of private banks to support the system as a whole.

"It is now 19 months after Bear Stearns failed and was taken over by JP MorganChase with the assistance of up to $30 billion of Federal Reserve money on March 16, 2008, and industrial production stands 14% below its peak in 2007. By contrast, 19 months after the Bank of the United States, with 450,000 depositors, failed on December 11, 1930 – the first major bank collapse in New York since the Knickerbocker Trust failure during the panic and depression of 1907 – industrial production, according to the Federal Reserve index, was 54% below its 1929 peak. "

Posted by: HalHorvath | November 5, 2009 11:30 PM | Report abuse

--"I have no trouble with Keynesian stimulus in the very occasional instance"--

In other words, it doesn't work, but you'll try anything in an emergency.

Of course, your "very occasional" is lost in the noise of half a century of hard Keynesian politics reflected in ever growing deficit spending. There is no paying it back tomorrow, or the next day, or the next. There's only an endless upping of the ante until there's no more ante to be upped, and when the money-dispensing helicopters run out of gas there will be no soft landing.

Posted by: msoja | November 5, 2009 11:46 PM | Report abuse

So... don't claim the tax credit!

Or send in an $8000 check to the U.S. Treasury explaining you'd have bought the place anyway.

Or send 800 malaria-preventing lifesaving bed nets to Africa

http://www.nothingbutnets.net/

Posted by: jeffro20 | November 6, 2009 12:09 AM | Report abuse

"Of course, your "very occasional" is lost in the noise of half a century of hard Keynesian politics reflected in ever growing deficit spending."

I agree with that. Since the seemingly unlimited "defense" spending of Reagan, and the growing deficits which Clinton only briefly reversed (due in part to boomer hitting peak earning power), we've been racking up T-bills. All that said...if the Chinese peg to the dollar was loosened, then the normal currency adjustment would happen, and believe it or not, U.S. exports would accelerate, the U.S. trade balance would improve, and other changes would follow...

Posted by: HalHorvath | November 6, 2009 12:10 AM | Report abuse

--"Or send in an $8000 check to the U.S. Treasury explaining you'd have bought the place anyway."--

In my experience, liberals unfailingly take all the tax deductions they can (Some go a little further -- see Sec'y of the Treasury). For some reason they want to be *forced* to pay taxes. It's some sort of masochism, I think.

Klein would have to be a truly fervent collectivist to voluntarily relinquish eight grand to the care of Nancy, Harry, Barry, and Co. The Washington Post isn't on as shaky ground as the New York Times, apparently, and I'm sure a good boy like Klein will always do well in a city where sucking up is the way up, but there's no sense being *foolish*, is there?

Posted by: msoja | November 6, 2009 12:32 AM | Report abuse

Eventually, msoggy, you'll stop talking in Randroid slogans.

I'm not going to hold my breath waiting.

Posted by: pseudonymousinnc | November 6, 2009 12:44 AM | Report abuse

--"Eventually, msoggy, you'll stop talking in Randroid slogans."--

Even talk of basic economics gets the "Randroid" sneer now, eh, mousi? Supply and demand! Artificial incentives! So much voodoo! Anything too specific must immediately be denounced and ridiculed, and properly labeled so that the unthinking masses will know who and what to be angry at. Except it doesn't work. But keep trying, mousi. It is, undoubtedly, the best you can do.

For anyone contemplating what Klein should do with his extra $8,000 (remember, he likes to worry about other people's money, so let's worry about his), should look up Mike Huckabee's "Tax Me More Fund", from the early part of the decade. He set it up so that liberals decrying low levels of taxation could make voluntary contributions in the name of donating to the public sector. Huckabee's program was largely symbolic, because there never has been any bar to paying more taxes than you owe, if that's what you want to do, but it was highly revealing for the large amounts of money that it didn't wind up collecting. In fact, if Klein were not to claim his $8,000 tax credit, he'd be contributing more in voluntary taxes than Huckabee's program collected in all of Arkansas.

Or, Klein could donate his $8K to charity. That too would go a long way to exploding the notion that liberals are less liberal in the charity department than conservatives.

C'mon, Klein, show some real altruism. Give 'til it hurts.

Posted by: msoja | November 6, 2009 9:06 AM | Report abuse

Spend a week without calling someone a collectivist, soggy, because every time you do that, you broadcast to the world that you're a fool not through ignorance, but by teaching yourself not to think.

C'mon, soggy. Think till it hurts.

Posted by: pseudonymousinnc | November 6, 2009 9:45 AM | Report abuse

"My feeling is that sellers get most of the benefit of the credit."

I'm not so sure. It probably depends on the market. I'm in Ohio, where the housing market stinks, and first time homebuyers have a ton of leverage right now, because they don't have to sell their house to buy a new one. There are a lot nice homes out there that have been on the market for 2 years.

That's not to say there aren't cases where the sellers could capture the profit. But I don't think the real estate market is at the point where sellers have enough bidders to really leverage the price up.

Also, for those who've mentioned using the $8,000 as down payment - you couldn't do that until June or July, and even then, the income threshold is lower than the threshold for the tax credit.

That said, if you can pull that off, you can make a profit off buying the house. I think our total down payment + closing on a $200,000 home was $6,500.

Posted by: jesmont | November 6, 2009 9:50 AM | Report abuse

*It is probably true that some proportion of buyers will take the credit and buy more stuff. For others though, it's another enticement to get into an enterprise that they can barely afford.*

The idea is that they *can* afford a house, but are unsure if it is the right time to buy, and the $8000 tax credit will accelerate the homebuying process, doing it now instead of next year (much like cash for clunkers was intended). Had I qualified for the tax credit, I likely would have made more of an effort to close on a place before December 1. And maybe this all helps head off a vicious cycle and death-spiral of the housing market. But since that death-spiral is no longer in effect, I really have no idea why the tax credit was extended other than to think that I lot of people feel upset that they "missed out" on their $8k tax credit and want politicians to ensure that they get it, too.

Posted by: constans | November 6, 2009 9:50 AM | Report abuse

--"Spend a week without calling someone a collectivist"--

As soon as a week goes by without Klein advocating that we're all part of some big collective, sure, mousi.

Posted by: msoja | November 6, 2009 10:29 AM | Report abuse

My guess, Constans, is that the Dems want to stimulate the economy more, but don't think they can pass another stimulus bill. Thus, they're willing to use inefficient spending if its popular enough that the Republicans won't block it.

Now if only we could get additional aid to states to be that popular . . .

Posted by: jesmont | November 6, 2009 10:30 AM | Report abuse

The core question is why the government thinks people need additional incentives to buy houses. If someone isn't willing to pay the price of a house, why are we trying to get them to buy it anyhow?

If you think that it's a matter of fairness to poorer people, then do something like reducing their payroll taxes instead of this nonsense.

Posted by: davestickler | November 6, 2009 11:16 AM | Report abuse

mosoja@10:29:
We ARE part of some big collective, unless you think your quality of life is solely the result of your individual efforts. If you'd pulled yourself up by your own bootstraps in Somalia you might have an argument, but if you were born in America and made it, you were already born halfway up a ladder someone else built and paid for.

Posted by: jackiebinaz | November 6, 2009 11:45 AM | Report abuse

--"[I]f you were born in America and made it, you were already born halfway up a ladder someone else built and paid for."--

Ladders are built and used by individuals, not some nebulous collective of your imagination. It was individual initiative, self-reliance, and personal responsibility that founded, propelled, and sustained this country. It is the slow lurch toward collectivism, and the smarmy corruption that your kind of thinking is a symptom of, that is killing it.

Posted by: msoja | November 6, 2009 1:44 PM | Report abuse

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