The Home Buyer Tax Credit contained in the American Recovery and Reinvestment Act of 2009 has been given much credit for buoying the housing market. But simple arithmetic shows that the credit’s effect has been minimal.
The law passed in February 2009 included a temporary 10 percent capped tax credit for qualified first-time home buyers. Later the program was expanded to include repeat home buyers, and recently home buyers were given until September 2010 to complete their qualified transaction.
Last week the Federal Housing Finance Agency released its housing price index for May 2010, and yesterday the Standard & Poor’s/Case-Shiller index was released. Both show that housing prices have not fallen significantly, if at all, from what they were a year before. News articles have asserted that housing prices stopped falling because of the tax credit and have planted seeds of worry that a housing-market collapse could continue when the credit expires.
The Internal Revenue Service reports that only $19 billion of tax credits have been claimed so far. The average credit was $6,000 to $7,000, small compared with the average sales price for a home of more than $200,000. More importantly, most home sales transactions involved no tax credit because the buyer was unqualified, or perhaps unaware. If these transactions were at all affected by the credit, it was only because they occurred in a wider market in which some transactions did involve credits.