Successful, Schmuccessful, As Long As It Costs Too Much

I'm not the only one taking issue with The New York Times' wording today. Bill McBride at Calculated Risk, who is usually extremely circumspect about second-guessing his citations, corrects some language in the Times article "Home Tax Credit Called Successful, but Costly."

There is no question this program was very costly. And why is the Treasury confusing activity with accomplishment? Sure sales briefly surged, but were new households formed? How many new jobs were created?

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[T]his shows two failures of the tax credit: 1) the high cost, and 2) it was just moving people from apartments to homes and didn't reduce the excess housing inventory (yes, rentals count as housing inventory too).

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[T]his has been the policy—support asset prices by limiting the supply (all the foreclosure delays), and pushing demand (low mortgage rates and the tax credit). This has helped the banks significantly, and [Economy.com's Mark] Zandi argues this has boosted confidence. Maybe … but I'm not convinced that supporting house prices above the market clearing level to help the banks and boost consumer confidence makes sense.

Note that the Times' true-but-misleading headline comes from the copy editors, not from reporter David Kocieniewski, and that Calculated Risk's clarifications are of claims made by the Treasury Department. The actual article is a would-be-funny-if-it-weren't-true tour of a program that essentially gave $8,000 tax breaks to a bunch of people who would have bought houses anyway. And while Kocieniewski does track down a couple of Purdue students who made their purchasing decision based on the credit, the story also details how the program gave a boost to people who didn't even buy a house:

After the number of homes sold in January and February dropped to record lows, sales rose 6.8 percent in March from a year earlier, as buyers raced to cash in before the credit expired. Nearly half of all March home sales involved first-time buyers, according to the National Association of Realtors.

"It's true that a lot of people who got the credit might have bought without it, but they might have bought in 2012 or 2013," said Senator Johnny Isakson, a Republican from Georgia, who worked for 30 years as an agent. "This got them to buy in 2009 and 2010, when we needed to shore things up."

But the program was open to widespread misuse. The first two phases of the credit did not require taxpayers to prove that they had actually bought a house. The Treasury's inspector general found in October 2009 that the I.R.S. had allowed $139 million in credits to people who had not yet bought homes, and $479 million to taxpayers who were not first-time buyers.

In a sane world, the first-time home buyer tax credit would be a joke, and the tales of waste, fraud and four-year-olds buying homes detailed in this report [pdf] by the Treasury's own inspector general would be told around campfires, by people who are living outdoors because they're waiting for the real estate market to hit bottom sometime in the 24th century.