Life After the Home Buyer Tax Credit

Copyright, The New York Times Company

The Home Buyer Tax Credit contained in the American Recovery and Reinvestment Act of 2009 has been given much credit for buoying the housing market. But recent housing market data suggest that the credit’s effect was limited, even while it lasted.

The law passed in February 2009 included a temporary 10 percent capped tax credit for qualified first-time home buyers that expired April 30, 2010. The program was later expanded to include repeat home buyers, and recently home buyers were given until September 2010 to complete qualified transactions.

One view of the tax credit’s effect is that it changes the timing of housing transactions — market participants rush to complete transactions before the credit expires — but has little effect on the value and quantity of homes because homes are expected to last many times longer than the tax credit does. Another view is that the market cannot do without the credit, and the housing market collapse that preceded it may well continue when it’s gone.

Although we do not yet have housing data beyond the summer of 2010, homes take time to build and housing starts can be informative about what will happen in the housing market over the next few months. A housing start is likely to be a house that will be finished in a few months, and presumably builders expect to command a high enough sales price to cover the costs on building the house.

The chart below shows seasonally adjusted single-family housing starts and completions since October 2008. Housing completions rose sharply as the deadline neared and spiked immediately after it, and for July and August were about as low as they have been in years.

Housing starts began coming down this spring, which helped set up the situation of few completions in July and August. But yesterday’s release by the Census Bureau confirmed that housing starts are not much lower than they were in the second half of 2009, when the tax credit was supposedly propping them up.

For now, it appears that, aside from this spring’s rush to meet the tax-credit deadline, the housing market after the tax credit will proceed at much the same pace it did for the time that the credit was in place.