Report: homebuyer tax credit to be phased out; Update: Never mind?

According to Calculated Risk, “[t]he Reid/Baucus proposal is to extend the tax credit and phase it out over 2010. The credit would be $8,000 through the end of Q1 2010, and decline $2,000 per quarter after that … ($6,000 in Q2, $4,000 in Q3, $2,000 in Q4 2010).”

This comes as a pleasant surprise. I had expected concerns about the housing market to trump concerns about the deficit and national debt.

Relative to an expansion or extension of the credit, the Reid-Baucus  proposal presumably will put downward pressure on housing prices. Assuming this proposal becomes law, the most likely scenario (in my view) is stable or gently rising home prices, particularly among low-end homes where demand in many cities is ridiculously strong.  However, even an inflation hawk like me has to acknowledge the possibility that the combination of increased foreclosures and the phasing out of the tax credit will result in renewed housing price deflation. There is enormous uncertainty here.  Much will depend on the macroeconomic environment (e.g., the unemployment rate) a year from now.

Update (10/27): Never mind?:  Home Buyer Tax Credit to be Extended and Eligibility Expanded. I should have known better than to think that sound policy would trump political considerations.


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