The First Time Home Buyers Tax Credit Boosts Sales, Not Economy

The first time home buyer's tax credit, which expires November 30, 2009, has been boosting U.S. summer home sales. The question is: can it last? With budget cuts, layoffs and an all-around depressed economy, there are some questions as to whether this jump in home sales will last and, too, whether the people buying homes will be able to keep them.

In July, sales jumped a record 7.2 per cent, with one out of every three home buyers being a first time home owner. 7.2 per cent might not seem like a lot, but when you realize that this equals 350,000 more home buyers in July than in June, it's clear that something is spurring on real estate consumers. With a third of home sales being to first-time home buyers, it's clear that the tax credit bears some responsibility for the situation.

Normally improved home sales would be cause for rejoicing. "Sales are up! The economy's turning around! Yay!" Indeed, we all hope that we will soon see some relief from the recession. However, it would be unwise to use this particular instance as "evidence" of a financial turnaround for the U.S. This brief burst of prosperity may subside once the first-time home buyer's tax credit expires at the end of November. 

Many buyers are taking advantage of the huge dips in prices for homes, hoping to see gains in equity. Foreclosure homes are especially popular, as buyers are getting homes at a fraction of the price, even in traditionally expensive markets like San Diego and Orlando. 

The national median sales price is now $178,400, nearly $100,000 below what it was in the early part of the decade. This can offer home buyers an exceptional value, but means nothing if the home owners are unable to hold onto their assets. 

Job losses are threatening the ordinary home owner even as they and the housing market bust have caused the spectacular drop in home prices. Even today, with a plethora of information on how to avoid home owner scams and how to make sure you can really afford your home, people are still losing their homes due to job cuts, job losses and just plain bad budgeting.

Despite the spike in home purchases, it would be unwise to take this as a sign that the recession is over or that the economy is gaining equilibrium. It remains to be seen whether the year's spike in home sales will continue on into 2010. If so, perhaps it is indicative of a positive change in the nation's finances, but there are definitely some doubts in that regard.