Home Buyer's Tax Credit
Unfortunately, limiting the credit to first time buyers and to $8,000 is too restrictive to accomplish the task. It's modification could be done at a relatively modest cost, and should be considered as part of President Obama's budget plan.
Eligibility should be expanded to anybody who currently
doesn't own a home, or buyers of second homes who have no intentions of selling
any other home in conjunction with that purchase.
Since the policy goal here is to reduce the inventory of unsold homes, it should not be provided to those not planning to use the tax credit for a replacement home. Those buyers will be putting their home on the market and we won't be reducing the unsold inventory. In addition the budgetary cost of extending the tax credit to all home buyers would be astronomical, so it isn't a realistic option anyway.
The $8,000 cap on the tax credit just passed is also too low. While it will definitely help home sales in rural and depressed areas where homes are available for $80,000 or less, it will be much less of a stimulus in higher priced housing markets like DC, Boston, San Francisco, Chicago, and Los Angeles. One alternative would be to raise the tax credit cap substantially (to $22,000 or so if you want the full effect in the higher priced real estate markets). An even better alternative would be to use an income test for tax credit eligibility instead. In his budget, President Obama is proposing to extend the expiring personal income tax cuts for those individuals earning less than $200,000 or couples earning less than $250,000. That's a sensible limit for the buyers tax credit eligibility as well.
Allowing taxpayers earning up to those amounts to receive the full 10% credit for home purchases, providing they don't sell any other home they currently own for the next three or so years, would be the most cost effective use of federal revenues to reduce the inventory of unsold homes and restore housing values.
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