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Existing home sales were up better than 9 percent in September. Last time home sales activity was this strong it was July 2007 - well before the recession hit. Both new and existing home sales are benefiting from a government program to give first-time buyers a big tax credit, but that credit is about to expire.
NPR's Tamara Keith reports.
TAMARA KEITH: More than a million and a half people have taken advantage of the first-time homebuyer tax credit, staking a claim to their own $8,000 chunk of stimulus funds. Many were already planning to buy, but Lawrence Yun, the chief economist for the National Association of Realtors, says at least 350,000 of them wouldn't have bought without the credit.
Mr. LAWRENCE YUN (Chief Economist, National Association of Realtors): Three hundred fifty to half million additional individual entering the market, that is having a significant impact in terms of reducing inventory and beginning to help stabilize home prices.
KEITH: The first-time buyers tax credit is kind of like Cash for Clunkers, but for houses instead of cars. It's giving some people that extra nudge to make a purchase they may have been on the fence about.
Economist Robert Dye is with PNC Financial Services Group. He says a lot of the sales reflected in September's strong numbers were the result of people rushing to take advantage of the tax credit before it's set to expire at the end of next month.
Mr. ROBERT DYE (PNC Financial Services Group): I think without it, we will see a post-incentive letdown just like we saw a letdown in post-Cash for Clunker auto sales.
KEITH: Republican Senator from Georgia Johnny Isakson has introduced an amendment to extend the credit. He says the housing market isn't strong enough to let the tax credit expire just yet.
Senator JOHNNY ISAKSON (Republican, Georgia): And you're going to have it happen right at the worst time possible because December, January and February are seasonally the lowest sale month anyway because it's the winter.
KEITH: Isakson is a former real estate agent. He's pushing to have the tax credit extended until June and expanded beyond first-time buyers. His amendment could get a vote as early as next week and has the backing of some powerful Democrats.
Sen. ISAKSON: Although you cannot offer a tax credit ad infinitum, certainly extending it through mid-year next year and making available to all homebuyers who occupy it as their principal residence makes a lot of sense.
KEITH: The theory is that by the middle of next year, the housing market will be more stable and sales won't hit a Cash for Clunkers-style cliff once the tax credit goes away. The Joint Committee on Taxation estimates extending and expanding the credit will cost an additional $17 billion.
Mr. TED GAYER (Senior Fellow, Brookings Institution): You're not getting a lot of bang for the buck.
KEITH: Ted Gayer is a senior fellow at the Brookings Institution and a former Bush administration economic adviser.
Mr. GAYER: Somebody needs to pull away the punch bowl a little bit. There are costs to doing all these, and we shouldn't just spend willy-nilly.
KEITH: By his math, the real cost of stimulating sales in this way is more like $40,000 per home, because most of the people taking advantage of the credit would have bought anyway. Gayer says we have to be careful not to re-inflate the housing bubble by pushing people that really should be renting into homeownership.
Mr. GAYER: It's a legitimate goal to try and alleviate the consequences of the bursting of the housing bubble, but we really all need to be cautious about reconstituting this norm that we had before, that all policy should direct everybody into promoting homeownership at all costs.
KEITH: And there's one more issue - fraud. We learned this week that thousands of people were claiming first-time homebuyer tax credits who didn't actually deserve them, including people who already owned homes and others who didn't go through the trouble of buying a home before collecting their $8,000. Even kids as young as four have collected the credit. If the program is extended, the IRS says it needs new authority to crackdown on fraud.
Tamara Keith, NPR News, Washington.
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