The $8000 Housing Credit is a Lousy Incentive

Yikes! Talk about making a bad thing worse:

The homebuyers’ credit — enacted last year, expanded this year and scheduled to expire Nov. 30 — would be extended to cover homes under contract by April 30. Also, it no longer would be limited to first-time buyers; people who have owned a home for at least five years could get a $6,500 credit on a new residence. Income limits for eligibility would be raised, making many more people qualify.

The problem with the housing crisis is lack of demand. What needs to happen is for house prices to come down so young people can afford to buy houses. A $8000 credit essentially allows sellers to keep their prices irrationally high. Buyers get the money from Uncle Sam and pay the sellers. No houses are made more affordable. Extending this credit from starter houses to the more expensive houses that second-time buyers will purchase is a horribly bad idea -- this just means that the housing market will take longer to stabilize while simultaneously depleting the US Treasury.

The housing credit is just one more thing (not as bad as the mortgage deduction, but nearly so) artificially inflating housing prices and providing an incentive for people to get houses that are larger than they need or can afford.