HOUSING CREDIT EXTENDED - WHAT ELSE IS NEW?

If you’re opposed to extending the first-time homebuyer’s credit (I am), you’re probably in the minority. And you’re definitely not in the Senate. The Senate voted unanimously to approve the bill and the House is expected to follow suit. (At least the approval bit.)

Under the new law, the first-time homebuyer’s credit would be extended to April 30, 2010 to sign a contract to buy a home and another sixty days to close. The bill also extends the credit to homeowners who have lived in their current home for five of the last eight years – those folks get a reduced credit of $6,500 for homes purchased after November 30, 2009 (but before the April deadline).

Additionally, income caps were raised to $125,000 a year for individuals and $225,000 a year for married couples. Raising the income caps? The only sensible part of the plan.

The new law will cost taxpayers about a billion dollars a month. Yes, a billion. Don’t forget the Law Of Big Numbers. If you were going to count to a billion it would take you 31.5 years.

According to a recent report released by Goldman Sachs economist Alec Phillips, all but about 200,000 of the 1.4 million first-time buyers who claimed the first-time homebuyer’s credit in 2009 would have purchased a home even without the incentive. The cost to taxpayers? $8.5 billion. If you do the math, that means that the real “cost” to taxpayers for increasing home sales is about $42,500 per home. Let that sink in for a minute.

Goldman Sachs also estimates that all of that money only resulted in boosting prices by 5% – and that includes the idea that sellers increased their prices in anticipation of the credit, something that I was concerned about.I don’t think anyone will argue that the bill did nothing. It clearly did something – at least 200,000 felt compelled to buy under the plan. But I am concerned about the cost. I don’t think we can fix everything by throwing more money at it. I guess I’m oddly more laissez-faire than Congress about the notion of letting the housing market right itself? We’ve had two years of housing credits (yes, there was a stimulus credit in 2008) and now we’re pushing off to 2010. When does it end?