The lobbyists for the National Association of Realtors sure earned their fee this go-round. Not only did Congress agree to extend through April, 2010 the existing $8,000 tax credit for first-time home buyers scheduled to expire at the end of this month, but now we're going to all pay for existing homeowners to have a similar tax break.  In the new bill President Obama was slated to sign today -- the housing credit legislation was  tacked onto legislation extending unemployment benefits -- existing homeowners will be able to claim a $6,500 tax credit if they buy a new home they intend to use as their primary residence.

Congress also decided to swing the door wide open for more Americans to get in on both tax breaks by dramatically increasing the income limit for the credit. Individuals with earnings below $125,000 will now be eligible (up from the current $75,000 limit) and married couples that file a joint tax return with income below $225,000 can claim the credit (up from the current $150,000.)  Oh, there is one tough limit: You can use the credit only for homes that cost less than $800,000.  When you consider that the average existing home sells for about 75 percent less than that, and that the upper limit for FHA-insured loans in high-cost areas tops out at $729,750, the limit seems sort of beside the point.

What isn't a small matter is whether this hit to tax revenue -- the official estimate is  nearly $11 billion over 10 years -- is a good use of federal funds when we're already so deficit-riddled. There have been numerous take-downs of the earlier incarnations of the credit, including the Brookings Institution's estimate that the tax credit subsidy worked out to about $43,000 per home sale. Just last week Goldman Sachs economist Alec Phillips estimated the subsidy's price tag at north of $80,000.

Former IMF economist (and current MIT prof) Simon Johnson also recently delivered a cogent dissection of  why the home buyer tax credit is a bad idea in a recent piece for The Washington Post, co-authored with James Kwak. It's a thoughtful piece that is well worth the read. A small excerpt:

"If someone could not have afforded a house without the tax credit, then what is he or she going to do when the tax credit goes away and the price of the house falls? In effect, the tax credit is a way of making houses temporarily affordable that would not otherwise be affordable, and we know where that leads."

But Johnson and other economists are no match for the NAR lobby.