John offers a thought-provoking explanation of why he does not support the housing tax credit. His argument is worth considering.
While the NAR and many Realtors® are advocating the extension of the $8,000 First Time Buyer Tax Credit, with some supporting a significant expansion of the program, doing so fails to bring about a recovery of the housing market. What it does is provide a “feel good” stimulus, a temporary surge in sales, similar to what “Cash for Clunkers” did for the automotive industry.
With the end of the “Clunkers” rebate program, car buyers have abandoned the market; and September auto sales are currently on track to equal the lowest on record, according to Edmunds.com. With several hundred thousand sales “stolen” from the future, industry experts project the market to remain well below pre-incentive levels. Could housing experience a similar fate?
The First Time Buyer Tax Credit has allowed many who might have otherwise purchased in the next few years to have their home now, and eager home buyers have taken advantage of today’s low prices and the $8,000 incentive. But borrowing from future sales fails to create long-term demand, and instead, only fosters an unpredictable environment of diminished sales. And the benefit is far from free. While today’s buyer receives a tax break, tomorrow’s taxpayer is burdened with billions of additional debt that only adds to the nation’s growing deficit.
Then, there is the estimated cost of achieving those sales today. With projections running as high as $100 billion, the incremental cost would be staggering. In a recent POST I pointed out that the current $8,000 tax credit was actually costing an estimated $43,000 per additional sale; and the new program, depending upon how it is structured, could cost dramatically more.
Programs such as these do little to improve the underlying problems, and instead simply make things worse, by artificially stimulating the market and creating a false sense of prosperity for both home buyers and Realtors®. Then, after the benefits of the stimulus have evaporated, there is less business for everyone.
Instead of temporary “feel good” programs—the kind politicians seem to prefer—let’s develop long-term solutions to the housing crisis. We could start by making a serious and meaningful effort to help those who are trying to avoid foreclosure; and we must halt rising unemployment. Until the economy is once again creating jobs, housing will continue to struggle. And while the beneficial impact of programs to restore the housing market will not be felt immediately, their benefits once realized, will be measurable and lasting.
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Steve, I agree. The current "rush to judgement" way of solving our woes is highly detrimental. The saving grace with the housing credit, there's no Toyota Corolla replacing the old car.
John,
The math does not add up. Speaking only to the NAR figures, you can't just add up the incremental sales and divide them into the stimulus funds. There is still not clear tally of the sales generated and funds allocated. Many first time home buyers purchased homes not represented by realtors. Additionally, because there is a lag in the filing of tax amendments versus the sale, you can true up the numbers until much later into the next year. Additionally, NAR has many other members and associates that have benefited from the stimulus. Lenders, inspectors, appraisers, title companies, insurance agencies, furniture stores, moving companies, utilities, painters, remodelers, and the list goes on - all of which have benefited. Now the real math should be done to show that most buyers don't actually get to reap the benefits of tax deductions, because rarely do they pay enough in interest and taxes to exceed the standard deduction. This is really a true subsidy and I would venture to say that it has had a very positive impact on the real estate community. If they would have expanded it to anyone buying a primary residence, they may have actually allowed more educated move up buyers to participate. However, this would not add NEW buyers, just more stable ones.
It is certainly a tricky question, and every action we have seen has been unprecedented..
Steve: I think this was a very wise re-blog. I feel the same way. We are really are getting to be a society of whiners. When was buying a house and getting a place to call home and a tax deduction not enough? I think this blogger nailed it.
Kevin,
That's a good way of putting it - the Toyota.
Steve
Scott,
Thanks for the comments. I don't think the credit has generated that many sales as an incentive. It has been a nice "thank you goft" for purchasing. After it was monetized it did help some people with the downpayment, but this opened an entire other issue. Those state agencies still have to get paid the money they advanced. :)
Steve
Chris Ann,
Thank you. If the prices are low enough, properties will sell. However, some properties remain unattractive, and some people still can't afford to buy. :)
Steve
Hi Steve:
I've been one to support the tax credit to expire, but for a different reason...
A deadline is a deadline.
Americans 'expect' extensions and do not have a sense of urgency about deadlines.
I'm all for allowing this to expire and having a better organized program next year, maybe one that gives $5,000 back for example. Make it a lower credit.
Toula,
I like that approach. You are correct about deadlines. ")
Steve