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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