(By Salman - iStockAnalyst Writer) After a protracted slump, the housing market appears to be healing as buyers return gradually and prices continue to stabilize in much of the nation. However, the danger of further price drops remains as the expiration of the federal homebuyer's tax credit approaches. The scheduled midyear expiration of the federal $8,000 homeowner tax credit is a major worry for most banks/homebuilders and economists alike as home sales typically lead the economy out of recession.
Congress approved the tax credit last year to spur the housing industry, and the benefit was to expire Nov. 30.The credit was extended into 2010, however, and other buyers were offered a $6,500 incentive. To take advantage of the credit, buyers must sign a sales contract by April 30 and close by June 30.
There is little doubt that housing tax credit has boosted the value of securities backed by residential mortgages and has therefore helped in recapitalizing banks, thus bolstering the entire financial system. Though the big banks are making big money again, they won't be back to solid health as long as they have to deal with a moribund housing market.
Because of this report on housing supply
The claim being debated is that federal stimulus simply moved housing demand forward such that we get more housing volatility. The stimulus failed to account for time preference. We pay a high price for unnecessary volatility.
I will let Calculated Risk handle the debate.
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