Would you pay $45,000 for $8,000?
by Tom on September 1, 2009
in Market Musings, house prices
A couple of interesting things from this report:
- Pending sales are way up. Up 12% since July of 2008
- The National Association of Realtors estimates that there are 350,000 renters who bought a home that wouldn’t have if it wasn’t for the $8,000 tax credit.
- If you do the math, we (the government) are spending $16,000,000,000 to generate 350,000 sales. That works out to $45,000 per sale.
Now I know a case can be made that those home slaes have generated additional consumer benefits (people buy appliances, go to Home Depot, etc.) but that’s still not a good ratio between expense and benefit.
Do you think that number will be something that Congress considers when they eventually decide to look at the idea of extending the tax credit?
Tom Vanderwell
Calculated Risk: Pending Home Sales Increase in July
From the NAR: Pending Home Sales on a Record RollThe Pending Home Sales Index, a forward-looking indicator based on contracts signed in July, increased 3.2 percent to 97.6 from a reading of 94.6 in June, and is 12.0 percent higher than July 2008 when it was 87.1. The index is at the highest level since June 2007 when it was 100.7.
…
NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit.
emphasis addedThe increase in pending sales has been mostly from lower priced homes with demand from first time home buyers (taking advantage of the tax credit) and investors.
And look at the cost of the tax credit! If NAR is close to being correct, 2 million buyers will claim the tax credt – times $8,000 – is $16 billion. But this only resulted in “approximately 350,000 additional sales”.
So this tax credit cost taxpayers about $45,000 per each additional home sold. Not very effective … especially considering most of these are lower priced homes.
