Thursday, September 17, 2009

Lawrence Yun speaks

Here's a CNBC interview with our favorite person, National Association of Realtors chief economist Lawrence Yun. He is arguing for an extension of the first-time home buyer tax credit. Basically, he wants to use our tax dollars to prop up a bubble.



More tax money to be wasted:
When Congress passed an $8,000 tax credit for first-time home buyers last winter, it was intended as a dose of shock therapy during a crisis. Now the question is becoming whether the housing market can function without it.

As many as 40 percent of all home buyers this year will qualify for the credit. It is on track to cost the government $15 billion, more than twice the amount that was projected when Congress passed the stimulus bill in February.

In the view of the real estate industry and some economists, all that money is well spent. They contend the credit is doing what it was meant to do, encouraging a recovery in the housing market that is gathering steam. Analysts say the credit is directly responsible for several hundred thousand home sales.

Skeptics argue that most of the money is going to people who would have bought a home anyway. And they contend that unless it is allowed to expire on schedule in late November, the tax credit is likely to become one more expensive government program that refuses to die.

The real estate industry, including the powerful 1.1 million-member National Association of Realtors, wants Congress to extend the credit at least through next summer. The group hopes to expand the program to $15,000 and to allow all buyers, not just those who have been out of the market for at least three years, to qualify. The price tag on that plan: $50 billion to $100 billion. ...

On the other side of the issue is the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. It labeled the original credit as one of the worst provisions of the stimulus package, on the grounds that the money is a bonus for people who would buy a house anyway. The center has an even dimmer view of extending the credit to all buyers.

“Is this the best way to spend money we don’t have?” asked senior fellow Roberton Williams.

Dean Baker of the Center for Economic and Policy Research called the credit “a questionable redistributive policy” from renters to home buyers, but said that he used it himself when he bought a house.

He wrote on his blog: “Thank you very much, suckers!”
So basically, money that could be used to help the poor or improve our schools would be used to prop up a bubble instead.

If Congress is intent on a housing tax credit, it would be more efficient and less expensive to have a homebuilding tax credit that only went to purchases of newly-constructed homes. Building new homes creates many construction jobs and increases the supply of housing. A greater housing supply then pushes down the cost of housing, both for new homeowners and renters.

By contrast, the way the proposed credit mostly would work is that there is a tax credit any time an existing home changes hands. If I sell an existing home to you, you get a tax credit. If you then sell an identical home to me, I get a tax credit. No construction jobs are created and the supply of housing does not increase when an existing home changes hands.

These tax credits don't just come out of thin air. Instead, other taxpayers are essentially paying part of the cost of your home. (Or you are paying part of the cost of someone else's home.) But if a tax credit is going to be extended anyway, a homebuilding tax credit gives the U.S. economy far more bang for the buck than a home buying tax credit.

Hat tip: Nonpartisan

19 comments:

  1. If I sell an existing home to you, you get a tax credit. If you then sell an identical home to me, I get a tax credit.

    Not exactly, in this example neither would get the tax credit since you are not first time buyers.

    ReplyDelete
  2. Yes Z, but if the Tax-Credit is extended like they want, with everyone being eligible and not just first-timers, then the example would most likely hold up.

    ReplyDelete
  3. I wonder how many times my wife and I could sell our house to each other back and forth before they catch on?

    ReplyDelete
  4. z said...
    "Not exactly, in this example neither would get the tax credit since you are not first time buyers."

    Good catch. My bad.

    ReplyDelete
  5. This drives me crazy. I repeat: The $8k tax credit is of no advantage to the buyer because it is factored into the selling price.

    It is of advantage to sellers, who get to sell at $8k more than they otherwise would.

    It is of advantage to REALTORs(R) because they get to take 6% of a bigger transaction.

    It is of advantage to mortgage lenders and brokers, who get to write and broker bigger loans.

    Also, the existence of this tax credit inhibits market price discovery because no one is sure whether it will end and when, or if it will be increased. It's just another factor to include in an already overly-complicated transactional decision. It's also more misguided central planning, and it constitutes a gift to bankers, brokers, homebuilders, REALTORs(R), and Uncle Scam's other owners.

    ReplyDelete
  6. I would like to see a public opinion poll on the question of whether it the credit should be extended. My guess would be that a large majority of the general US public would be opposed to extending it.

    ReplyDelete
  7. I actually think the 8k tax credit has less of am impact than most people think in high priced markets. Although I am sure people enjoy taking advantantage of the credit, the money is normally not available to you until after you purchased the home and filed your taxes. Basically with that said the $8k should not play much of an impact on ones ability to purchase a home. For example if a person had a $500 credit they could use on a computer. If two stores offered a computer that person wanted for $500, but one of them offered an $8 mail in rebate. Financially that $8 rebate should play little role on my ability purchase the computer. All it does is make the system with the rebate more desirable than the other system. The only exception I would see would be in the few cases were the person the only had $492 and borrowed $8 under the table to make up the difference until he got his tax rebate.

    ReplyDelete
  8. tangelo mozillo - right on

    last Anon- the bottom line impact is that this adding billions to our future debt.

    WHEN DOES THE INSANITY STOP??

    ReplyDelete
  9. "WHEN DOES THE INSANITY STOP??"

    When we have reached the bottom and everyone has figured out that bandaids wont stop the pus from leaking from this horrible gash.

    ReplyDelete
  10. I agree that the credit is a waste of tax payer dollars... All I was stating is that the tax credit probably does not have as much impact on DC homes prices as people may like to beleive it does.

    ReplyDelete
  11. Yep - often its the people who early on said the 8K "wouldnt do anything" to slow or stop the downturn, are now the same ones accusing it of causing 100% of the price stability we see today.

    ReplyDelete
  12. "same ones accusing it of causing 100% of the price stability we see today."

    I love when prices drop 10%-20% yoy and people call it stability! I hope things stay stable for another 3 or 4 years. lol

    ReplyDelete
  13. Anonymous 9-18-09 11:54 AM said...

    "I love when prices drop 10%-20% yoy and people call it stability! I hope things stay stable for another 3 or 4 years. lol"

    This happened recently:

    In late 2005 a real estate agent was showing me a property that I felt was WAY overpriced. She told me real estate only goes up in value and that I should buy now or forever be priced out of the market. I told her that real estate had formed a bubble and that I would be able to buy a home like the one she was showing me for half that amount in a few years. She LAUGHED at me.

    Recently while dining out that former agent waited on my table. At the end of the meal when she presented my check I told her she had earned a nice tip. The tip was written on the back of the bill, which said, simply, "Buy now or be forever priced out of the market."

    ReplyDelete
  14. Who's the big brain behind this "homebuiling tax credit" idea? First of all, the intent of the first-time homebuyer tax credit is was to get those that were sitting on the fence of homeownership to buy up the glut of housing inventory and foreclosures that were sitting on the market. Whether it benefits your individual goals or not, the outcome is that inventories have been reduced and the market has stabilized. The goal was never to prop up construction employment or to make home values decrease even further by further overbuilding. Please stop this homebuilding tax credit nonsense, its lunacy!

    ReplyDelete
  15. "the outcome is that inventories have been reduced"

    The inventories being reduced was only for 2 months. It was a blip. They are going to go right back up again. Foreclosures are still happening and will continue to happen for 4 more years.

    ReplyDelete
  16. "I love when prices drop 10%-20% yoy and people call it stability! I hope things stay stable for another 3 or 4 years. lol"

    I guess I was just thinking of Arlington, Alexandria, Fairfax, Loudoun & PWC counties where median prices are UP YOY.

    ReplyDelete
  17. "I guess I was just thinking of Arlington, Alexandria, Fairfax, Loudoun & PWC counties where median prices are UP YOY."

    yeah I dont live in VA, I live in MD. Though even if I did live in VA, a 2 month blip in a 3 year fall isnt much to claim stability in.

    ReplyDelete
  18. "The inventories being reduced was only for 2 months. It was a blip. They are going to go right back up again. Foreclosures are still happening and will continue to happen for 4 more years."

    Brilliant!...So you are saying that the reduction in inventory was only temporary and that more homes will be added to the market? Thanks for this enlightening proclamation. Your final prediction that foreclosures will continue to happen for 4 more years takes the prize though. Historical trends that foreclosures will continue...wait for it...FOREVER!

    ReplyDelete
  19. So basically, money that could be used to help the poor or improve our schools would be used to prop up a bubble instead. Or, if you're talking to Republicans, you could argue that this money is being added to the deficit, and displacing private investment in something OTHER than housing, which we appear to have an adequate supply of currently.

    ReplyDelete