One purpose for passing the home purchase tax credit was to help boost the level of house prices, massaging the housing market back to health and finding a bottom to the drop in home values. However, an article by economist Kash Mansori shows why the home purchase tax credit is unlikely to have any impact on sale prices. Rather, the volume of home sales may increase slightly because it gives people $8,000 more to spend on the home they were already willing to buy.
first tuesday take: The vital event in reviving the housing market is establishing a firm bottoming of prices. That will likely occur in 2011. After a bottom is established, long-term investors currently clutching cash will begin investing in cheap real estate assets. They will cause the sales volume to increase, probably in 2012 with prices beginning to rise in 2013.
Re: “Kash Mansori on a home purchase tax credit” from the Economist Blog