Many of you probably saw the story in The New York Times last week about the debate over extending the federal home buyer tax credit. After reading the story, titled "Fight in Congress Looms on Tax Break for Homebuyers," many of you probably walked away, like I did, with a feeling that the reporter really didn't get a real firm grasp of what exactly the tax credit means for home buyers, home builders, the real estate industry, and the economy at large.
 
The couple the reporter interviewed as so-called representative buyers was Joseph and Chassity Myers. As newlyweds, the Myers already had designs on buying a home, so they looked at the tax credit as a bonus, extra dollars to purchase some new furniture to go with their new digs. That's great for them. There is no doubt that there are plenty of people out there who feel similarly about the tax credit, that it's just free money from the government.
 
However, the reporter made it seem like there was something fundamentally wrong with the Myers using their stimulus money to purchase home furnishings. To each his own, I say. There are plenty of people out there who used the tax credit for down payment purposes because they didn't have enough savings to cover that.
 
Just take a look at the NAHB's stats, if you think I'm just making this up. The NAHB estimates that out of the expected 200,000 incremental home sales that will come out of the home buyer tax credit program, 40,000 of those incremental sales will be the result of state housing finance agencies' FHA-approved monetization programs. That means that one-fifth of the additional sales that the tax credit generated will happen because the tax credit was monetized through state housing agencies specifically for down payment purposes.
 
I also ran across another interesting stat on the topic last week from the California Association of Realtors. The association recently released results from its survey, "2009 First-time Home Buyers Tax Credit Survey." The big takeaway? Nearly 40% of the first-time home buyers survey said they would not have purchased a home if the federal tax credit for first-time home buyers was not offered.

Maybe it's me, but I have a hard time believing that people would say they wouldn't have bought a home without the tax credit if they were seeing the tax credit as a free government cheese.
 
But if you still need convincing, the industry coalition Fix Housing First has been collecting stories from all around the country from buyers who have used the tax credit. And they all didn't buy furniture from IKEA. Check it out here.
 
All this to say that (a) I don't believe all buyers who took advantage of the tax credit would've bought anyway without the credit, and (b) I don't believe people using the tax credit money for things other than down payment purposes is a bad thing.
 
Take the Myers, for example. They spent their money on furniture. That's an $8,000 check that went into their pockets and promptly came out in business revenue for the companies from which they bought furniture, wages earned for the workers in those stores and manufacturing facilities, and tax revenue for the local, state, and federal economies. I don't see any shame in that.
 
The other beef I have with the article is something that I somewhat overlooked until a source very close to the tax credit issue flagged this paragraph for me:
 
"As many as 40 percent of all home buyers this year will qualify for the credit. It is on track to cost the government $15 billion, more than twice the amount that was projected when Congress passed the stimulus bill in February."
 
As it turns out, there's an error in this statement--and it's not the 40% of home buyers stat, and it's not the $15 billion price tag that should give you cause for pause. Rather it's the statement that the program will cost the government double what it estimated.
 
A lot of tax credit program critics have focused on the cost of the program. It's a fair objection to make, although I personally believe the benefits outweigh the costs. But the problem, according to tax credit insiders, is that the reporter failed to match up the estimated cost of the program with Congress' accounting.
  
Without getting too much into the weeds of the details, the story is pretty much that the reporter pulled a number from government financial documents--most likely this document from the Joint Committee on Taxation, although let it be known that he didn't cite his source--that he thought represented what Congress believed was the cost of the home buyer tax credit. According to page two of this document, the government attached a price tag to the credit of $6.6 billion, which if estimates that the program will cost around $15 billion all in are close, then yes, it looks like the program would cost twice as much as what Congress originally estimated.

However, the error was that the reporter didn't take into account--and probably unintentionally--that Congress had already made an allocation on the government balance sheet for the $7,500 tax credit from last year. According to the Joint Committee on Taxation's documents (page 56, if you're interested in the hyper details), that program had a cost of roughly $9.9 billion over five years.
  
Of course, when the $8,000 tax credit program came to be, Congress had to "sunset" a decent sized chunk of the older $7,500 tax credit. The documents don't explicitly spell out how much, but best guess estimates from an NAHB tax credit expert says that taking into account that consideration, the true cost of the $8,000 tax credit program "would be $6.6 billion plus $6 or $7 billion,or approximately $13 billion, which is closer to where the program will end up and contrary to the claim in the Times."
 
So, to sum up, the cost of the program was reflected in government financials but as two line items rather than one. The Times got it wrong. Let's just hope the damage to the efforts on Capitol Hill is less severe than would appear at first blush.