Um, So What's Going To Happen When The Home Buying Tax Credit Expires?

Here’s a question nobody knows the answer to: What’s going to happen when the (already extended) Homebuying Tax Credit expires April 30th?

The New York Times tells the tale of a family in Iowa that has been desperate to sell before the credit vanishes. If they hadn’t, they would have had to lower the price of their home — and have less to buy a new home, and so on and so on.

Buyers who want the tax credit must sign a deal by April 30 but would have until June 30 to close. Consequently, if sales volume is going to plunge after the credit expires, it will not show up until the numbers for July are reported. While Mr. Humphries says he does not expect sales that month to fall by December’s record rate, he predicts a long period of merely “dragging along the bottom,” with prices to match.

That was just what the Palestinis were worried about.

If they did not sell by April 30, they anticipated having to lower their price yet again, to compensate any buyer for the credit he would no longer get. It also meant they would not get a credit themselves on buying a new home in Philadelphia, pushing down what they could afford to pay.

Long story short– everyone is scared to end the credit — including people who think the credit was a bad idea.

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.

Spurt of Home Buying as End of Tax Credit Looms [NYT]