President Barack Obama's signature this morning would extend and expand the $8,000 first-time home buyer tax credit when it expires after Nov. 30.
That would mean that an incentive that first applied to home purchases in April 2008 — albeit at a less generous $7,500 — will stretch well into 2010.
The National Association of Realtors wanted the credit to rise to $15,000, but I think the better question is why the credit isn't smaller.
Between April 2008 and September 2009, the median Tampa Bay home price dipped 22 percent. That means that over the past 18 months, the credit is covering a larger chunk of a typical home's purchase price.
Based on September's median home price of $137,800, the tax credit paid 5.8 percent of the price of a home. Back in April 2008, the $7,500 tax credit covered 4.3 percent of the cost of typical Tampa Bay home worth $176,000. The credit's buying power has swollen by about a third.
My advice to the powers-that-be is simple: Shrink the credit by $1,500, and use the rest to let real estate investors tap the money. The first idea is mine; the second comes from national housing economist Mark Zandi.
Sacrilege, you'll say. Investors are the greedy bums who brought the wrath of the housing gods on our heads. The way I see it, by encouraging investors to buy homes next year, we're handing a mop to the slobs who tracked mud on the floor tile: It's your mess, you clean it up.
Zandi argues that foreclosures, despite a recent flattening of their two-year upward trajectory, will take flight again in the first half of 2010. Who's going to sponge up those thousands of excess houses? Certainly not the 11 percent of Floridians out of work.
It's not that extravagant a step. Washington has already conceded that the credit should apply to more than just first-time home buyers. For next year, there's also a lesser, $6,500 credit for homeowners who want to move. But it slipped in an anti-speculator provision: You have to have lived in your current home at least five years. Flippers need not apply.
It's no one's intention to reinflate the housing bubble. Limit each investor to using the credit once or twice. The cost? So far this year, about 1.4 million home buyers have tapped the $8,000 credit. (About 100,000 of those transactions could be fraudulent, the Internal Revenue Service said.)
That's $11.2 billion worth of credits. By reducing the $8,000 to $6,500 across the board, we would have saved $2.1 billion, enough to subsidize 323,000 more home sales.
When you consider that Tampa Bay's housing surplus falls somewhere in the 10,000-to-15,000 range, spreading the credit more thinly, but to a wider range of buyers, could make a wealth of difference.
James Thorner can be reached at firstname.lastname@example.org or (813) 226-3313.