When Congress passed an $8,000 tax credit for first-time home buyers last winter, it was intended as a dose of shock therapy during a crisis. Now the question is becoming whether the housing market can function without it.
As many as 40 percent of all home buyers this year will qualify for the credit. It is on track to cost $15 billion, more than twice the amount projected when Congress passed the stimulus bill in February.
In the view of the real estate industry and some economists, all that money is well spent. They contend the credit is doing what it was meant to do, encouraging a recovery in the housing market that is gathering steam. Analysts say the credit is directly responsible for several hundred thousand home sales.
Skeptics argue that most of the money is going to people who would have bought a home anyway. And they contend that unless it is allowed to expire on schedule in late November, the tax credit is likely to become one more expensive government program that refuses to die.
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The real estate industry, including the powerful 1.1 million-member National Association of Realtors, wants Congress to extend the credit at least through next summer. The group hopes to expand the program to $15,000 and to allow all buyers, not just those who have been out of the market for at least three years, to qualify. The price tag on that plan: $50 billion to $100 billion.
Mortgage applications increased nearly 10 percent for the week ending Sept. 3 from late August, the largest gain since early April and the latest of many signs of life in real estate. The upturn can be attributed to several factors: the return of confidence, very low mortgage rates, and prices in some markets that are at decade-low levels.
But the looming expiration of the tax credit Nov. 30 seems to be playing a role too.
The National Association of Realtors estimates about 350,000 sales this year would not have happened without the lure of the tax credit. Moody's Economy.com used computer modeling to put the number at 400,000.
Economists are sharply split on the merits of another round of government help.
Mark Zandi, chief economist of Moody's Economy.com, favors expanding the credit to all home buyers, even investors, into next summer. "The risks of not doing something like this are too great," he said. "I don't think the coast is clear."
James Glassman of JPMorgan Chase echoed those views but said he favored continuing to restrict the credit to first-time buyers.
On the other side of the issue is the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. It labeled the original credit as one of the worst provisions of the stimulus package, on the grounds that the money is a bonus for people who would buy a house anyway. The center has an even dimmer view of extending the credit to all buyers.
"Is this the best way to spend money we don't have?" asked senior fellow Roberton Williams.