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. *Whew, just in time for the November elections.*

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.

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 (you may recall that I wasn’t a fan of the bill in the first place).

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 (except maybe baseball but that just makes me sound like a bitter Phillies’ fan). I guess I’m oddly more laissez-faire than Congress (who’d have thunk it?) but *gasp* what 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?

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Kelly Erb is a tax attorney, tax writer and podcaster.


  1. http://www.taxgirl.com/housing-credit-extended-what-else-is-new/comment-page-1/#comment-12779

    Is there ever a time when people learn NOT to rely on information distributed by Goldman Sachs, Inc. (See their predictions on oil, circa 2007-2008) …

    Remember Goldman Sachs, Inc the company who participated in packaging/bundling sub-prime loans with AAA (triple A) rated prime and commercial property? This was from approximately, 2003-2006 when they got John Snow out of the Treasury Office by “consulting” with White House Counsel to advise him he did not have a “conflict of interest” related to, don’t look now, securities or bonds his “stock broker” bought without his knowledge. Winky-wink. ( Did not have conflict but could in the future… http://en.wikipedia.org/wiki/John_W._Snow#Secretary_of_the_Treasury ). The same Goldman Sachs, Inc whose CEO Henry Paulson was then “recommended” to take over in John Snow’s absence. The same guy who had his hands in bundling the assets, he himself would later call, “toxic.” …And who calls any asset a “toxic” thing anyway, except perhaps an enemy of the United States who would like to see the country’s financial system hemorrhage as when inhaling or being exposed to a “toxic” aroma; during a time of transition or when the country might be more vulnerable than normal.

    The same Goldman Sachs, Inc who produced not one but two “special reports” about how the price of oil is going to go to 200/barrel due to a potential disruption. http://www.marketwatch.com/story/goldman-sachs-raises-possibility-of-200-a-barrel-oil

    The same Goldman Sachs, Inc who when ethics questions were raised about Treasury Paulson having a conflicted orientation to banks he was “helping” and giving large sums of money to, ( http://www.nytimes.com/2009/08/09/business/09paulson.html ), got the White House Counsel to waive his conflict of interest. Though when compared to John Snows’ conflict which was much less on a dollar to dollar comparison basis, one can extrapolate, such “advisory-level” hypocrisy does not come cheap.

    The point is, Goldman Sachs, Inc has been involved in the mortgage mess, AND Treasury Paulson was supremely conflicted, having a foot in the mess while at Goldman and a foot in the mess, while at Treasury. Like a side note related to a baseball player who used steroids, Goldman Sachs, Inc was involved in stimulating speculation with their “special reports” and consequent participation in that market. Such that an exponentially increasing, higher price of oil, would immediately distress the sub-prime class mortgage holder and the class of assets they held, that Goldman Sachs had prior bundled and packaged together. That a 25 percent price increase in the price of oil, during a 3-6 month period can be estimated or projected to increase cost of living expenses, by 1.25-3.75% in the same period. Such that a 100 percent increase, in a similar period, or a 140 percent increase in price of oil, in an 8 to 12 month period or, during a short time frame, can cause cost of living expenses to ramp up over 7-35 percent, depending on whose formula is used (Goldman Sachs probably has two or three coefficients and math tables it presents to the public and tables it keeps neatly tucked away, far from public scrutiny). Targeting oil price, directly impacts food distribution and supply routes. The asset class most likely to be affected by this increase? … Bundled with those mortgage classes which might not otherwise be distressed, unless, they are somehow “packaged” with the asset class who is most likely to be distressed. The first class to be hit by a “spike in oil” brought on by a “potential disruption” (which did not actually happen), were those at the bottom who struggle to get to work and pay for basic necessities. (Distress in supply routes or distribution, can also lead to short term, 1-2 week, temporary lay offs, as companies cut on other costs.)

    Distress a certain class of mortgages, in a bundle, and you distress the other classes in the bundle. To this end: Sub-prime was prior to Henry Paulson’s tenure at Goldman Sachs, traditionally held in separate distinct classification, and was not “bundled” or packaged with more reliable asset classes of mortgages. Yielding the equation: Goldman Sachs, Inc or GS – (sub-prime + prime + commercial asset classes) * bundling / derivative (thrown in for good measure) + a credit default swap obligation / by the coefficient of John Snows resignation when not having a Conflict of Interest (thanks to a stock broker who is not named) and coefficient of future spike in price of oil (after Goldman unloaded their mortgaged back securities on unsuspecting clients, foreign banks + domestic financial firms) = Implosion and distress of the mortgage backed securities market + a short position for Henry Paulson’s firm, as he is being appointed to an executive branch office namely the Secretary of Treasury Department of the United States.

    I know, it was all just a big coincidence.

    Side Note: This is the same Goldman Sachs, Inc, who did not produce their “special” reports on oil, until after selling their mortgage back products to domestic clients of the firm, and rolling profits into the oil market. (Yes the same Goldman Sachs, Inc, who targeted competitor firms and sucker clients to experience financial terror and ruin, while being in the trust and care of the firm.)

    My point is, can we ask that our best economic journalists and writers, stop making reference to this crooked brokerage house who during any crisis or declared emergency, might like to clonk competitor firms on the head and take their best assets, lie about it, dump the bad parts on the U.S. tax payer base, and then, spend the rest of their natural born lives, lying about it.

    • I’m going to guess, based on the number of similar posts in pending, that you have an issue with Goldman Sachs. I’m allowing this comment but hoping that this is the end of it…

  2. Do you realize, that you have put yourself into totally, completely agreeing with me over something? Couldn’t that be dangerous?

    Jeff Day EA
    Evansville, IN

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