Friday, July 02, 2010
Housing Declines Reach New Records
New Housing Data Will Spur Calls for Extension of Tax Credit, but the Program Was Plagued With Fraud
The pending home sales index, a leading indicator for sales of existing homes, plunged 30% in May. According to the National Association of Realtors (NAR), the decline is a new record low.
The index, which measures signed sales contracts on previously owned homes, was down 15.9% compared with the same month a year ago. And it had risen 23% between January and April.
The sharp drop in pending home sales mirrors the 33% drop in sales of new homes in May, which are also recorded at the time of the sales contract. That was the slowest pace in the 47 years records have been kept.
This is terrible news not only for the housing industry, but for the national economy in general.
The expiration of the first-time home-buyer's tax credit was largely faulted for the declines.
The program, which expired in April, gave qualified homebuyers up to $8,000 in the form of a refundable tax credit. They got the cash even if they owed no taxes.
However, homebuyers did get a little more time to close on their homes and receive the tax credit. This week, Congress voted to extend the June 30 closing deadline until the end of September. But that only affects those who met the April deadline to sign sales contracts.
The tax credit has helped more than 2.5 million people buy homes, and the program has distributed $18 billion in tax credits.
With that kind of money available, there were bound to be unscrupulous individuals taking advantage of the program and taxpayers. In fact, the IRS says it has blocked almost 400,000 questionable claims, stopping about a billion dollars from going out improperly.
However a new report from the IRS's chief watchdog discovered tens of millions of dollars in fraud.
Though the tax credit applied only to a primary residence, an estimated 1,300 inmates fraudulently collected the tax credit from behind bars. In fact, there were more than 200 people serving life sentences who cashed in.
The Treasury inspector general for tax administration says his team found more than $17 million in credits for homes purchased before the start of the program — including some bought 10 years ago. And some 10,000 taxpayers collected credits on homes that had already been claimed by someone else. In one case, 67 people all used the same address.
So while there will be calls to extend the program further to reinvigorate the housing market, it was very expensive to all taxpayers and was fraught with abuse.