Extending the home-buyer tax credit: up is down and down is up

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Once again, the federal home-buyer tax credit meant to spur demand in the housing market is coming to an end. To claim the credit—worth up to $8,000 for first-time buyers and $6,500 for folks who already own a home—you’ve got to be in contract by April 30 and close by the end of June.

Much as happened the last time this deadline loomed, people are rushing to buy houses. Also like last time: there’s talk of hanging on to the credit for a bit longer. But it might surprise you who thinks that’s a good idea and who doesn’t.

Consider this passage from a recent NYT story:

Arguments for extending the tax credit a second time are just beginning. Robert Shiller, a professor of economics at Yale and co-developer of the Standard & Poor’s/Case-Shiller housing price index, is an early advocate. He thinks the credit was a bad idea that nevertheless the market cannot do without.

“You don’t make drug addicts go cold turkey,” Mr. Shiller said. “The credit interferes with the market in an arbitrary way, but ending it now would be psychologically powerful. People will be in a bad mood about buying a house.” He advocates phasing it out gradually.

In some states, worries about the housing market are trumping fiscal considerations. They are adopting or extending tax credits or other supportive measures in hopes of bringing the market to life.

The prime example of state action is found in California, but other places, such as New Jersey and South Carolina, are stepping in too.

On the other side of the argument are—oddly—housing lobbyists. A spokesman for the National Association of Realtors has said his group won’t angle for another extension. TIME’s Janet Morrissey recently heard the same thing from another one-time booster:

Jay Brinkmann, chief economist with the Mortgage Bankers Association, says he would not like to see the program extended a second time. “They work best if they’re somewhat rare and short-lived,” he says of such programs.

What’s up with that? It’s not as though all is suddenly sunny in the housing market.

Part of the pivot may have to do with the realization that political willpower has left the room. Even Johnny Isakson, the Senate’s biggest fan of the tax credit the first two times around, has said he wouldn’t support another extension. Why waste time and money pushing for something that isn’t likely to happen?

Another possibility: it’s clear that these tax credits just aren’t doing much for the market. Last fall, a Deutsche Bank report estimated that only about 5% of home sales could be attributed to the tax credit—the other 95% would have happened anyway. Even with that sort of analysis out there, the extension was passed, and the credit was expanded to many current owners. (The Deutsche Bank report did acknowledge that the credit also had an impact by boosting consumer sentiment and home-buyer psychology.)

Now that we have had that much more time to sit with the home-buyer tax credit, perhaps our expectations are appropriately waning. In fact, many industry observers have noted that the extension seems to have drummed up many fewer sales than the original credit. That makes sense—the most-ready buyers would have jumped on the credit the first time around, before they knew it would be extended.

Maybe this time it won’t be.