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Does the $8,000 Tax Credit Really Cost $43,000 Per Buyer?

Last week,'s Martha White made a persuasive argument that the $8,000 first time home buyer tax credit should be allowed to die a natural death.

Why? Because, she argues, it doesn't cost $8,000 per each first-time buyer. If you break it down and look at how many first-time buyers bought a house solely because there was a tax credit, the number of buyers is a lot lower and the cost per buyer is an eye-popping $43,000.

White argues that while anywhere from 1.5 to 1.8 million people bought houses this year, only about 350,000 of those were first-time buyers who took advantage of the $8,000 tax credit.
Of those, she says just 150,000 needed the tax credit in order to close on the house. If you do the math, that breaks out to $43,000 per first-time home buyer - a pretty hefty fee.

I've spent a lot of time wondering just how much steam the real estate market has to have in order to go it alone - without the $8,000 tax credit, and without the government buying 90 percent of all mortgages (through its ownership of Fannie Mae, Freddie Mac, and FHA), and without the government buying more than a trillion dollar's worth of U.S. mortgage-backed securities.

If you take a step back, you have to agree that the U.S. housing market is on life support. The good news we've been hearing over these last few months (about sales and home prices rising), seems like an illusion rather than a leg the economy can stand on.

In other words, if you take all of the government support away, would there still be a real estate market? Not much, if any. Interest rates are being artificially held down by at least one-half percent, perhaps more, so you can bet on interest rates rising. That means affordability goes down as fewer home buyers can qualify. Even fewer buyers now means home prices would continue to decline and more home builders would go out of business.

If Congress is going to take up an extension or expansion of the $8,000 first time home buyer tax credit, it had better get moving. September 30th was my drop dead date for negotiating on a house and still get it financed in time to close by November 30th. Sen. Johnny Isakson says his drop dead date is October 15th.

The clock is still ticking.


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