I was catching up on some of my e-mails this morning when I came across Citi analyst Josh Levin's "Private Homebuilder Perspectives" research note from Sept. 4. The takeaways were encouraging to say the least. Ninety percent of the private builders surveyed reported that August sales rates were on par if not better than July's pace.

Fortifying the strength of the demand during July and August was the closing window on the federal $8,000 first-time buyer tax credit. Levin wrote:

"Other issues cited by the private home builders included (1) the sentiment that July and August sales and starts may have been inflated by the upcoming expiration of the federal home buyer tax credit as homes have to be delivered by 12/1 in order to qualify, (2) the possibility that cancellations could rise if the homes cannot be delivered by 12/1 due to lenders' inability to process the expected uptick in originations in a timely manner, and (3) continuing appraisal problems."

With the tax credit clearly working and home builders growing increasingly concerned about whatever snags can jeopardize their ability to capture the sales blip, the issue of whether or not the tax credit will be extended--much less expanded--was top of mind as I finished reading some of the anecdotal comments in Levin's note.  

At last count, there were six bills circulating on Capitol Hill related to the home buyer tax credit. Some want to just extend the existing credit by another year; others wanted to extend the program's lifespan and open it up to all buyers of primary residences. And still one other aims to do all of the above plus increase the dollar value of the tax credit. Which proposal--if any--will win out is anyone's guess at the moment.

(As an aside... Big Builder's October cover story will feature Sen. Johnny Isakson (R-Ga.), an original congressional crusader for the tax credit and sponsor of one of the new bills to keep the tax credit working. So, be on the lookout for it!)

I recently spoke with Robert D. Dietz, the NAHB's director of tax issues, about the success of the existing tax credit and the various proposals in the works to keep some version of it going. Unlike Sen. Isakson, who wants to replace the current federal first-time buyer tax credit with a $15,000 credit that would be open to all home buyers regardless of income, the NAHB supports extending the life of the current $8,000 credit through Nov. 30, 2010, while expanding it to all buyers of primary residences.

Dietz shared with me some interesting projections as to what kind of jolt the extension/expansion of the $8,000 program would have on the economy:

• 82,000 incremental housing starts (no specs)
• 347,000 new jobs (one-third of them in the construction field)
• 383,000 additional home purchases (both new and existing)
• $3.2 billion in local and state government tax revenue
• $8.4 billion in federal tax revenue
• $12.1 billion in business income
• $16.1 billion in wages and salaries

It's interesting to see how some of those numbers stack up against the projections for the current tax credit. By opening up eligibility to all buyers rather than just first-time buyers, the NAHB expects the proposed credit program to increase incremental sales by roughly 92%.

Critics of the tax credit program--blogger Calculated Risk, for one--have argued that the economic benefits of such programs are largely overblown. In a recent post, Calculated Risk concluded that on a per-unit basis, the first-time home buyer tax credit cost outweighed the benefits, and therefore it would be almost silly to extend the program. (Please note he used estimates from the NAR.)

With 1.9 million first-time buyers, the total cost of the tax credit will be $15.2 billion. Divide $15.2 billion by 350,000, and the program cost $43,400 per additional buyer. The actual number could be much higher if there were fewer additional first-time buyers than the NAR's estimate--or if the overall cost is higher (more buyers claiming tax credit).

This is the actual cost per additional home sold. And since buyer interest will fade (like with the Clunkers program), the cost per additional house will increase sharply if the program is extended.

I found this way of doing a cost-benefit analysis of the credit interesting, although I have to say I think it's fatally flawed in that it doesn't account for much less acknowledge any of the giddy-up the new-home part of the equation would give local and national economies. Just for comparison's sake, I plugged in NAHB's decidedly more conservative numbers.

The NAHB projects that under the current tax credit program, somewhere between 1 million and 1.5 million people will claim the credit and that it will result in roughly 200,000 incremental sales of new and existing homes. Let's just split the difference and use 1.3 million for our math. Using the same ratio of credit claimers to incremental sales, an NAHB-supported expanded and extended tax credit program would mean that to get to the NAHB's estimate of 383,000 incremental sales, roughly 2.5 million people would have to claim the credit. Multiply that number of people by the cost of the credit--$8,000--and we get a total cost of around $20 billion.

That's a lot. I'll give you that.

But then compare that will the sum of the stats above. Does $20 billion seem unreasonable when you compare it to the nearly $40 billion the tax credit will put back into the pockets of consumers, businesses, local jurisdictions, and federal government?

I think Dietz summed up the answer:

"I think right now we're not just talking about a tax credit to improve housing," he said. "The program has significant ripple effects."