Manufacturing Demand

Will home sales fall off a cliff once the latest version of the homebuyer tax credit expires? Experts vary on the precise impact of the credit, and on what will happen when it ends. But most agree the credit created a big wave of sales pulled forward in time to when the housing market really needed a boost.

Mortgage Banking
March 2010

By Robert Stowe England

The homebuyer tax credit--all three versions adopted since its first effective date of April 1, 2008--is widely believed to have boosted overall home sales at a time when the housing market was in a deep slump.

At this point, opinions vary on the extent of the boost, while early data support the view that the credit has had a positive impact. But the big question that remains, is how much of future sales were pulled forward in time, leaving the period after the credits expire badly starved for demand.

"Tax credits like this are designed to essentially pull demand forward," explains Jay Brinkmann, chief economist with the Mortgage Bankers Association (MBA). "So, I don't think anyone thinks that it creates new potential homebuyers out of thin air."

The tax credit is intended to influence people who were prepared to buy next year or the year after, and induce them to buy the home earlier in order to receive the benefit of the credit, according to Brinkmann. One of its goals is to reduce the excess inventory of homes on the market and provide some price stabilization "with the realization that it is a short-term event," he says.

To read more, click this link to Mr. England's web site:


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