Homebuyer tax credit underperformed, economist finds

Congress originally passed an $8,000 tax credit for first-time homebuyers as part of the stimulus bill President Obama signed into law last February. 

Lawmakers extended and expanded the measure in November to include a $6,500 tax credit for buyers who have already owned a home. Both of these measures expired at the end of April and so far are not expected to be extended.

The tax credits were supposed to bring demand back to the housing market and help raise the sales price of homes. But home values in most markets (106 of the 135 tracked by the website) continue to decline on a year-over-year basis. Negative home equity also continues to be an issue in much of the country with 23.3 percent of single-family homes having mortgages underwater, up from 21.4 percent in the fourth quarter of 2009, Zillow found.  

The real estate website does not expect conditions to improve until new buyers, who didn't jump in early because of the tax credits, enter the market, possibly this fall. However, Humphries also does not expect the market to make a full recovery for quite some time. 

"We believe national home values are more likely to reach bottom in the third quarter of 2010, rather than in the second quarter, as we had hoped," he said. "When we do get there, we expect the high rates of negative equity and foreclosures to keep national home value appreciation near zero for some time, possibly as long as five years."