Why the First-Time Homebuyer Tax Credit Hurt Consumers and the Market

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Published May 11, 2011

| FOXBusiness

Since this show began I've been saying something needs to be done to get more Americans into the housing market.

Once Americans have enough confidence to jump in - the market has a shot at turning around. For a while the White House's homebuyer tax credit was supposed to be that impetus. You remember that right?
The Federal Government would give first-time homebuyers $8,000 in 2009 and 2010. It sent home sales skyrocketing for a time... but now it's backfiring on those who took advantage of it.

SmartMoney points out that due to plummeting prices home buyers are losing money. Just in the last year the median home value fell from $185,000 in 2010 - to $170,000 in March.

So if someone bought their home last year and got that $8,000, their home has most likely lost $15,000 in value. That means the buyer lost nearly twice as much than they received.

If you were quick to jump on that tax credit - say back in 2009, the median price is down even more. And guess what - the consensus among experts is this trend will continue.

Robert Shiller is predicting prices to fall another 5 to 10% this year, and Zillow says home prices are "extremely unlikely" to bottom out this year. That's just one downside of this tax credit.

Another is the way it's distorted the market. Sales of existing homes are up nearly 4% month-to-month, but down more than 6% in March 2011 compared with sales in March of 2010.

Sales of new homes are even worse— down 22% in one year's time. Also don't forget - a tax credit is paid for with taxpayer dollars! The IRS paid $26 billion to cover the credit for three million homebuyers, and at least $500 million of that went for fraudulent claims.

This housing market needs to turn around... but this is more proof that a flash-in-the-pan taxpayer funded credit is not the way to do it.

Unfortunately the only way may be giving more confidence to homebuyers - and that's just going to take time.

Be sure to catch the Willis Report on the FOX Business Network every weekday from 5-6pm ET.

URL

http://www.foxbusiness.com/personal-finance/2011/05/11/time-homebuyer-tax-credit-hurt-consumers-market/