Renew the Homebuyer Credit?

The stimulus first-time homebuyer credit is set to expire on November 30th of this year. For those of you who are not familiar with this credit, it is an $8000 refundable tax credit for anyone with an AGI less than $150,000.

This credit has cost approximately $15 Billion and over the course of the past year home prices have started to stabilize nationally and sales have begun to outpace listings.

However, nationally, home prices are down about 11% over the last year, and a recent study by Brookings Institute found that 85% of the home sales would have occurred regardless of the credit. This means that the government spent roughly $43,000 a piece for the additional 350,000 home sales. This is a hefty subsidy for these additional sales, and represents a windfall for the other 2M home buyers this past year who claimed the credit.

Senator Johnny Isakson (R-GA), who incidentally made his fortune in selling real estate and has remained a friend of the National Association of Realtors, along with Chris Dodd (D-CT) have proposed extending the credit into 2010, doubling it to $15,000 and raise the income limits to $300,000. The cost of this credit is expected to be approximately $30B.

Raising the income limit only adds an additional 5M households into the mix, therefore, it is unlikely to drive a large number of increased housing sales (beyond those whom would already buy a house anyways in 2010) simply because of the small pool of additional people. Furthermore, as indicated above, housing prices have year-to-year fallen on average of 11%. This is roughly $14,000 of free, market based, subsidy that has already been built in and is arguably driving as much sales growth as the smaller credit over the past year. Finally, despite housing prices falling $14,000 over the last year, this includes the $8000 subsidy built in in the form of an inflated price. As soon the subsidy ends (and it will have to at some point), all housing prices will in effect drop by the subsidy amount. Therefore, by extending the credit for a year, this drop in actual home prices will come just as prices may be turning around.

If those receiving the credit are facing artificially inflated housing prices, who is seeing the benefit of this subsidy. Well, and additional $8000 in sale price results in roughly $500 in additional real estate agent commission. Thats certainly why NAR is behind extending the credit, who cares if the country goes an additional $30B in the hole, I made an extra $500 on a sale. The rest of the subsidy is going to current home owners, through an inflated sale price. But this whole problem is that there are too many houses on the market in the first place. This subsidy is therefore encouraging more homes on the market rather than removing the backlog of homes currently for sale.

If the government is committed to spending 30B in 2010 to increase home sales and home prices, why not invest that in immigration? Part of the problem is that many regions are overbuilt and home ownership (home borrowership) had been inflated to higher than sustainable levels. We don't need a government handout to turn renters into buyers, we need MORE buyers in the first place and the only way to quickly achieve this is through immigration.

Immigrants, and particularly the highly skilled H1B visa immigrants are one of the most entrepreneurial demographic groups. They come to the US to fill highly skilled and technical jobs that simply can't be filled by people already here, work for a few years, establishing families and friends along the way, before often leaving those original companies to form spin-offs or new technological ventures.

This year (2009) the US spend 151M on citizenship and immigration. http://www.whitehouse.gov/omb/rewrite/budget/fy2009/homeland.html
A fraction of 30B could be spent to streamline citizenship and visa programs, as well as expand them to enable to make US immigration attractive not only for the opportunities offered here, but for the ease and speed of our immigration and visa process.