Dissenting on the homebuyer's tax credit

Actual numbers dispute the 'analysis' from Matt Towery ...

According to the Internal Revenue Service, 1.4 million homes have been bought since the credit's inception; the National Association of Realtors gives a somewhat higher figure of 1.8 million to 2 million. (Either way, the program is going to cost about $15 billion if it winds down as planned, according to the Associated Press.) And yet, according to the NAR's own math, the tax credit was the make-or-break factor in only 350,000 of those sales. The National Association of Home Builders, another industry group lobbying to extend the credit, places this figure even lower, at 150,000. In other words, the vast majority of home buyers would have signed on the dotted line even without the government's incentive.

As any marketing professional knows, you don't measure a campaign's success by how much it costs but by how much it costs per person to persuade people to change their behavior. As the observant bloggers at Calculated Risk have pointed out, when you divide the number of "conversions" (that is, people who bought a house only because of the tax credit) by the total amount spent on the program, the numbers look very different. Now, instead of the program costing $8,000 per buyer, it costs $43,000 -- not a great use of taxpayer dollars.

While Towery was correct in suggesting that comparing 'Cash For Clunkers' to this tax credit is wrongheaded, it's wrongheaded not for the rationales he presented. The former featured a compelling financial incentive - frequently matched by local dealers - that actually encouraged unwilling buyers to purchase a vehicle. The latter, however, featured an inconsequential incentive that offered a minimal impact on monthly mortgate rates and, as a result, wasn't a factor that drove new buyers into the market.