Word: creditability
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...that, the way the tax credit is being implemented at times echoes certain practices that may have helped get us into the housing mess. For example, some state housing agencies are allowed to provide second mortgages to buyers who don't have enough money for a down payment so that they might "monetize" the tax credit and get the cash up front. Down-payment assistance is considered by many to have contributed to the crisis because it helped people buy homes they couldn't really afford. Anyone who doesn't understand that it's a bad idea to push people...
...does the home-buyer tax credit persist? First, because of fear. Falling house prices, necessary though they were, triggered a lot of the mess we're in, and the thought of quashing a nascent recovery naturally leads to thoughts of another round of repercussions. Home sales have been growing for months, but a one-time pullback - like the one we saw in August - can still send chills down spines...
...There's also political reality. Set aside for a moment the formidable lobbying power of real estate agents and homebuilders, as well as the fact that one of the Senate's biggest tax-credit boosters used to sell houses for a living, and you're still left with homeowners - also known as voters. Many of them have long asked their elected representatives why ordinary folks aren't getting more government help. A house-related tax break - whether or not it's good policy - sure does play well. (See high-end homes that won't sell...
...this tax break probably isn't good policy, especially now that we seem to have left the darkest part of the housing-market woods. Here are the numbers. The IRS says 1.4 million first-time buyers have benefited from the credit so far; the National Association of Realtors thinks that figure will hit 1.8 million before the end of November. Meanwhile, a number of groups have estimated how many of those people wouldn't have bought houses had it not been for the tax break - about 350,000 or 400,000. In other words, some 80% of buyers would have...
...Worse yet, by extending the home-buyer tax credit, especially to existing homeowners, we run the risk of creating a situation where it never goes away. If a tax credit - or any other economic benefit - sticks around long enough, people start feeling entitled to it, even if it was originally supposed to be temporary. In academic literature this is called the endowment effect. Taking away such a program once it's ingrained can be a monumental political challenge. It's not just that expanding the home-buyer tax credit would cost $50 billion to $100 billion this year...