Economists: Federal Tax Credit Improves Housing Market
November 6th, 2009 by 
Joseph Smith
The tax credit program of the federal government had helped drive up home sales for the past few months. This is the consensus of many economists based on market data showing home sales increasing by 9.4 percent to an annual rate of 5.57 million last month.
Industry economists have predicted that home sales will increase to a 5.35 million annual rate. They said that the housing market has to thank first-time homebuyers who decided to take advantage and apply for the $8,000 tax credit and the low-priced properties.
But the federal program is about to come to end by November 30. Already, several efforts have been launched to seek the expansion and extension of the federal program.
Advocates pointed out that without the federal program, the housing market would be slow to recover. However, some economists said that the program has merely shifted sales from one time to another and has not done much to treat the gaping wound in the housing market.
They acknowledge that the housing market really showed some improvements in the past few months as indicated in the reduction of inventories. According to market data, the total number of properties on the inventory dropped by 7.5 percent to 3.63 million by the end of September.
However, some economists do not put much faith on the numbers which they claimed do not include the shadow inventory. They explained that the shadow inventory is largely composed of bank-owned properties and were not on the market list.
On the other hand, some economists think that extending the federal tax program may not be a good move on the part of policymakers. They said that the government is subsidizing the program and spending money that it does not have. They pointed out that people have to learn to prepare themselves to grow at a sustainable way rather than rely on government stimulus which is currently driving the economy.
Meanwhile, the Internal Revenue Service is conducting an investigation on the over 100,000 shady claims for tax break. So far, there were nearly 1 million tax break claims which means a 10 percent rate of potential fraud.
Market data also showed that median home price continued to drop with last month’s price declining by 9 percent to $174,000. Economists said that tax credit could not prevent prices from dropping another 5 percent on the coming months
