WSJ: Does the Tax Credit Really Make a Difference?

• October 30th 2009

by Mark Wellborn

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Brett Arends, The Wall Street Journal columnist who does a good job of explaining financial issues in layman’s terms, examines whether or not the expanding home buyer credit would be a good deal for buyers in his most recent column.

In a post earlier this week, we wrote that the Senate passed a proposal that would extend the credit to home purchases under contract by April 30, 2010 and it would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law. The proposal would also let homeowners qualify for a $6,500 credit if they have lived in their residence for five years.

However, according to Arends’ column, the credit will really only make a difference in places where homes are really cheap:

For example, it may provide a helpful shot in the arm for the stricken real estate market in Nevada (where Sen. Reid faces a tough re-election battle next year) more than in high-priced coastal markets like Silicon Valley and New York City.

According to Zillow.com, the median home price in Las Vegas right now is just $139,000. That compares to $562,000 in San Jose, California and $795,000 in Manhattan.

So the maximum $8,000 credit will cover about 6% of the median price in Vegas, but barely 1% in the most-expensive areas.

For your reference, Redfin says that the current median list price for homes in the DC area is currently $350,000.

This article originally published at http://dc.urbanturf.production.logicbrush.com/articles/blog/wsj_does_the_tax_credit_really_make_a_difference/1466.