Monday, February 09, 2009

Mansori: Tax Credit Will Not Boost House Prices

by Calculated Risk on 2/09/2009 01:32:00 AM

Kash Mansori writes at Econbrowser: Will a Home Purchase Tax Credit Help Boost House Prices?

Check it out. Kash provides a couple of simple diagrams that suggest that the tax credit will probably not meet the stated goal of stabilizing house prices.

If my hunch is correct, then all the house purchase tax credit will do is to modestly increase the number of houses sold each month... with no noticeable impact on house prices.

That doesn't mean that the tax credit would have no impact. In particular, it may be a boon to some cash-constrained households that want to buy a house right now but can't borrow enough. And it should help to reduce inventories of unsold houses by a bit. But if you're hoping that it will make house prices rise, with all of the beneficial economic effects on home equity that such a rise might have... think again.
That is $35 billion for nothing.