According to reports from the IRS, via Housingwire.com, the total bill for the first time homebuyer tax credit is $16.2 billion through July. An additional $7.3 billion was spent on interest-free loans and other related stimulus.
The Government Accountability Office estimates that when it is all said and done, we will spend $22 billion on the homebuyer tax credits.
I suppose this naturally leads to the question of whether or not the expenditure was worth it. I am of the opinion that it was not. According to the Brooking Institute, only 15 percent of people who took advantage of the tax credit said it was their primary motivator for purchasing a home. A Zillow survey from 2009 found 18 percent of respondents saying the credit was their primary motivator. We could infer that upward of 80 percent of those who claimed the credit would have made a purchase anyway, the credit simply accelerated their purchases. Even if you do not buy into these numbers, we can conservatively estimate that a substantial portion of those claiming the credit would’ve eventually made a purchase in its absence.
If you do buy into the 80 percent figure, we spent more than $40,000 on every home that would not have sold without the tax credit. To me this is a vastly inefficient use of taxpayer money. Additionally, housing prices have resumed falling after being briefly buoyed by the tax credit. Many analysts expect to see housing prices fall between 5 and 20 percent over the next few years. If one of the goals of the stimulus was to stabilize the housing market, that goal was not achieved.
In short, we spent at least $16 billion to temporarily lift the market. We did not reduce the overall housing supply (which is steadily increasing), and we stole demand from the fall and summer in order for a short-term gain in the spring. The whole thing was bad policy that was clearly politically-motivated. With any luck it will not return.