As I'm sure you've heard, Congress and President Obama renewed the home buyer tax credit on Friday. It's a massive waste of money that will simply add to the national debt. Unlike infrastructure spending, which will enhance long-term growth while helping to bail the country out of its current financial mess, spending $40,000+ each just to transfer existing houses from one person to another will harm long-term economic growth. It will harm economic growth because the government is not getting anything substantive in return for its spending and because it will have to pay perpetual interest on that deficit spending.Washington Post columnist Steven Pearlstein reiterates why the home buyer tax credit is wasteful:
Politicians in Washington are desperate to show that they're doing something about jobs.
Unfortunately, what they're proposing to do is to spend a lot of money that they don't have in ways that won't work to help too many people who are neither desperate nor deserving.
Topping the list of idiotic ideas is the bipartisan push to reinflate the housing bubble by not only extending the tax credit for struggling first-time home buyers for six months but also expanding it to another "neglected corner of human misery," as the Heritage Foundation's Ron Utt so aptly put it -- affluent homeowners who want to trade their current places for something better.
This $10 billion boondoggle is nothing more than a giveaway to the real estate industrial complex and people who could afford to buy a new home anyway. Even its most prominent supporters acknowledge that of the first-timers who have already claimed the credit, only one in five wouldn't have bought a home without it, which works out to a cost per sale induced of $45,000. A more impartial estimate, by Goldman Sachs, puts the figure at $75,000. That is almost certain to go even higher once the credit is extended to existing homeowners with incomes of up to $225,000 buying houses worth as much as $800,000. ...
It is disappointing enough that President Obama and his team of crackerjack economic advisers have not had the wisdom or courage to oppose what any first-year graduate student would recognize as truly lousy policy. But perhaps that's because the Panderer in Chief is himself knee deep in stimulus hokum of his own with his proposal to shower Social Security recipients with a $250 cost-of-living increase this year even though their cost of living has actually declined. At a cost of $14 billion in borrowed money, it's a grossly inefficient way to stimulate the economy, create jobs or even boost consumer confidence.
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Some pretty screwed up priorities coming from our corrupt congressional "leaders" there. They are beholden to rotten groups like NAR, that don't care what kind of damage they inflict on our economy. Enjoy the commissions, you sycophants. Complements of the U.S. tax-payers.
ReplyDeleteI wonder if the pool of potential first-time homebuyers is essentially depleted right now, and that the act of extending the tax credit is mostly symbolic.
ReplyDeleteFrom the Pearlstein article:
A more impartial estimate, by Goldman Sachs, puts the figure at $75,000.
GS is impartial? Who knew?
It's a little disingenuous to argue that extending a tax credit to spur home sales through April does nothing substantive when you've been counting the days for the expiration of the credits so that you can revel in the collapse of the real estate market. Spending $10 billion to prevent that collapse is money well spent in my opinion.
ReplyDeleteBy extending the credit into the start of the traditional home buying season, I'm guessing there is a lot of worry that hopes for a renewal of massive home price drops will never come.
The concern is that home prices are still over-inflated, and that we are just trying to set an artificial floor by creating the tax credit.
ReplyDeleteOn a somewhat unrelated note, check this site out:
http://www.greaterfool.ca/
A housing bubble blog from Canada. But the difference there is that it hasn't popped yet - everyone has seen what has happened down here in the U.S., and the economy up there is hurting the same way it is down here, yet people keep bidding up the prices of houses..
How much money do the taxpayers save if house prices stop going down? For instance, Fannie Mae just required ANOTHER $15B last quarter alone. If house prices keep falling, they and freddie will eventually steal hundreds of billions. That's not counting commercial banks needing bailouts. That's not counting local tax revenues based on real estate values. It's much more nuanced that just saying we are wasting $75k/additional home sale.
ReplyDelete"It's a little disingenuous to argue that extending a tax credit to spur home sales through April does nothing substantive when you've been counting the days for the expiration of the credits so that you can revel in the collapse of the real estate market. Spending $10 billion to prevent that collapse is money well spent in my opinion."
ReplyDeleteIt does nothing in the end. Pulling future demand into the present will depress the market down the road and put more people underwater. And at a cost of billions of taxpayer dollars, I can't see how you could possibly justify such a waste of money.
BTW, "saving from collapse" is a joke. The market needs to correct, and all stops put in place to prevent it must be pulled at some point. You seem to want as many people to be underwater as possible if you support this travesty "credit".
"How much money do the taxpayers save if house prices stop going down?"
None, they'll simply go down in the future and cost us even more. There is no "fix" except to let the market correct and not let more people get trapped underwater in the end. Prices are unsustainable. When this is no longer the case, then you won't need these garbage wastes of taxpayer dollars to prop up the market.
It's a little disingenuous to argue that extending a tax credit to spur home sales through April does nothing substantive when you've been counting the days for the expiration of the credits so that you can revel in the collapse of the real estate market.
ReplyDeleteWay to use a bogus straw man fallacy.
All these comments about if you remove the credit home prices will drop into oblivion is hilarious. Kinda like those who said once cash for clunkers was recinded, auto sales (SAAR) would fall of a cliff.
ReplyDeletehttp://1.bp.blogspot.com/_pMscxxELHEg/SvCZ-V2l2rI/AAAAAAAAGts/xoWX8-YUgDU/s1600-h/VehicleSalesOct2.jpg
OOPS! As expected, once C4C was removed, sales continued on their former trend - that is to say - bottomed - starting to move higher.
Look for the same thing in homes next april as the homebuyer credit expires, and those waiting with baited breath for home prices to "resume their collapse" will be bitterly disappointed.
Fortunately, they will likely then have some other scapegoat to pin the abscence of a collapse on - they will forever flit from issue to issue - never admitting the fact - home prices have bottomed and the L shaped recovery is here...
Criticism of the home-buyer credit seems to be based on faulty logic. We could say that unemployment benefits are just a way to "reinflate the labor-market bubble."
ReplyDeleteThese things just soften the landing. In the case of the real estate market, I hear critics say that it's a waste of money because it will have no effect. Or, because it's recreating the bubble. (Contradictory arguments.).
I think society has an interest in improving liquidity in market. Society has an unusual stake in this market due to its unusual bailouts (repurchase agreements, troubled asset purchases, the Fed buying mortgages from Fannie/Freddie).
It would be dumb to do all that (preventing the financial market from hitting bottom harder than it needed to) and then stand back while the RE market hits bottom harder than it needs to just because "it's a free market."
Some folks will say that we shouldn't have intervened in the financial markets either. They're part of the irrelevant libertarian fringe. There's not much to debate with those folks.
Mark
Regarding "anonymous's" comment that removal of the cash-for-clunker program didn't cause car sales to "fall off the cliff," you're arguing from the convenient position of not having to live through the effects of no stimulus spending.
ReplyDeleteWe don't know what condition we'd be in if we hadn't stimulated car sales. More auto-worker layoffs? More layoffs from suppliers? Fewer people buying the products that keep potential car buyers employed (and able to consider a purchase now)?
Also, I believe it's incorrect to employ hyperbolic "extremes" about "falling off the cliff," or how the home-buyer credit is recreating the bubble.
It seems to me like these market interventions are just a matter of softening the volatility. Not that it prevents the utmost extreme of volatility, nor causes it.
It would be dumb to do all that (preventing the financial market from hitting bottom harder than it needed to) and then stand back while the RE market hits bottom harder than it needs to just because "it's a free market."
ReplyDeleteThe rationale for bailing out the financial market was that it was absolutely essential for society as we know it to not collapse. What would be "dumb" is assuming that because government intervention was probably necessary in that extraordinary case, we might as well open the floodgates and intervene wherever the lobbyists beg the loudest.
Mark F: "Criticism of the home-buyer credit seems to be based on faulty logic. We could say that unemployment benefits are just a way to "reinflate the labor-market bubble.""
ReplyDeleteNo, it's nothing like that. We want unemployment to be low, and offer a means for those who are unemployed to continue to eat and pay their utilities. Comparing that to the "need" to keep housing prices propped up is absurd.
As far as "softening the landing", this is essentially the same as reinflating the bubble. Or, more like prolonging the correction so that more people buy and are trapped underwater when it does finally happen. There is no economically sane rationalization to this policy.
I saw a recent interview with Mr. Shiller where he indicates that current urban housing values do not make sense to him. I'm surprised you haven't picked up on it yet. I'd post a link but I don't have time to search for it right now.
ReplyDeletelink
ReplyDeleteI think that's what you're talking about.
It's a temporarily bubble re-inflation. Great for anybody selling now, as they can get their piece of bubble pie one more time. Horrible for buyers that will fall underwater in short time, much worse than had the credit not existed at all. Compliments of the U.S. taxpayers. What a horrible idea.
"As far as "softening the landing", this is essentially the same as reinflating the bubble. Or, more like prolonging the correction so that more people buy and are trapped underwater when it does finally happen."
ReplyDeleteIts nothing at all like that. The fact of the matter is theve put in a floor while incomes catch up to support prices. It puts noone underwater - it allows imprudent people to escape - and it fu*ks prudent savers like you and me who want to see a collapse.
I mean, look at DC area incomes - they went up 2-6% this year. That means that wherever the "true" price (i.e. absent govt support) would be, it is now 2-6% higher than it was last year.
Give this a few more years and suddenly these inflated prices are supported by real incomes. Dont get me wrong - in my mind, this is bullshit - I am mad as hell as I dont see why I am being punished for others irresponsibility. Still, I see it as it is and am not going to deny reality any further.
>I dont see why I am being punished
ReplyDelete>for others irresponsibility.
You (we) were already punished when society rushed in to stabilize a failing financial system. That entailed taking troubled (mortgage-based) assets off the banks' books, buying mortgage backed securities, and taking ownership of AIG (which was the pin in the grenade when it came to mortgage-backed securities due to its underwriting of CDS contracts).
Doing nothing to stabilize the real estate market would simply make the existing punishment worse.
Considering how systemic the risk is, I believe it was a prudent move. Despite repeated assertions that there is no economic reason to do it, there clearly is.
"Its nothing at all like that. The fact of the matter is theve put in a floor while incomes catch up to support prices. It puts noone underwater - it allows imprudent people to escape - and it fu*ks prudent savers like you and me who want to see a collapse."
ReplyDeleteI agree that it f*cks you and me, but I see it as delaying the inevitable. Prices shot up in my neighborhood in nova. People were paying 5% more than they would have before the credit. When the credit dies, their values will plunge and they'll be underwater.
Mark F:
"You (we) were already punished when society rushed in to stabilize a failing financial system. That entailed taking troubled (mortgage-based) assets off the banks' books, buying mortgage backed securities, and taking ownership of AIG (which was the pin in the grenade when it came to mortgage-backed securities due to its underwriting of CDS contracts)."
So one evil justifies another? Nice.
"Doing nothing to stabilize the real estate market would simply make the existing punishment worse."
Says you. Economists beg to differ. This delays the pain and extends it to more people. Not to mention the ass-raping us taxpayers are getting.
"Considering how systemic the risk is, I believe it was a prudent move. Despite repeated assertions that there is no economic reason to do it, there clearly is."
There isn't. I've laid it out clearly. Find an economist or business opinion-writer that thinks this is good for the economy that isn't backed by NAR. You won't, so your claims are baseless.
As someone who plans to sell their house in a couple years, this seems to doom me...everybody buying houses now, for the tax credit or because of low prices, will NOT be in the market in a couple years to buy mine.
ReplyDeleteIs that correct? Just wondering whether I am doubly screwed, by not getting the tax credit and paying for it, and then being screwed when I go to sell my house.
Kevin wrote:
ReplyDelete>Find an economist or business
>opinion-writer that thinks this is
>good for the economy that isn't
>backed by NAR. You won't, so your
>claims are baseless.
Reported in CNN:
"The most fundamental argument for the credit is that nothing works in the economy if housing is falling -- it hurts household wealth and credit becomes tight," said Mark Zandi, chief economist at Moody's Economy.com. "[The credit] is a good insurance policy. It's vital to stem the housing price declines."
-- http://money.cnn.com/2009/10/28/real_estate/homebuyer_credit/index.htm
I believe it's a legitimate stimulus of the economy, and prudent when it's considered how much exposure society has to mortgage-backed securities through the bailout of the financial system.
It strikes me as similar to the rational behind the stimulus of the auto industry. To reduce the rate of "unwinding" that was occurring.
I agree with your assessment that these things are intended to slow the pain, and potentially delay the penalty to another day. But, that's what each of us do individually when, laid off, we're faced with the choice between buying food with a credit card, or starving while smug in our ideological purity. We're living the same principle at a collective level.
And, as I mentioned earlier, if it's wrong to "re-inflate bubbles," then everyone should be upset about unemployment insurance. That simply keeps wages high by preventing labor "assets" from reaching true market value (an eagerness to work at McDonalds instead of waiting for a better job through the assistance of social benefits).
"There isn't. I've laid it out clearly. Find an economist or business opinion-writer that thinks this is good for the economy that isn't backed by NAR. You won't, so your claims are baseless."
ReplyDeleteAre you saying Nouriel Roubini is backed by the NAR? He thought it was a good idea to ward off any potential deflationary cycle.
>Is that correct?
ReplyDeleteIMO, there are too many variables to know for certain.
Hopefully the credit will be phased out, not ended abruptly.
And, the sellers today are presumably moving and buying homes.
However, to me, it seems difficult to say "this program screws me." Society stabilized the real estate market by intervening in the financial crisis. If we hadn't don't that, you'd be more screwed right now than you might already feel after a 30% decline in property values.
Does not society have the legitimate interest to stimulate liquidity in the real estate market? To the benefit of the assets (often toxic) that it had to back? Assets that don't even have a market due to their illiquidity?
It doesn't see correct to focus only on isolated aspects of that endeavor without the entire context.
Mark F, thanks for posting that. I've read plenty of articles so far, and all economists seemed to completely rip the tax credit plan. I guess not all then.
ReplyDeleteAnonymous, Roubini predicted the impact of the credit, but isn't promoting it. He just said recently that prices will fall with its removal, basically insinuating how pointless it was.
but I see it as delaying the inevitable.
ReplyDeleteBut by doing it for 1 year, the true bottom is now 2-6% higher (by area). If they do it again in 2010, tack on another 2-6%. If they come up with some other plan in 2011, tack on a few more points.
Suddenly - "inevitable" means it wont fall in the slightest.
Im not saying this will happen - but dont say its delaying the "inevitable", when that may or may not be the case.
Well, I think there is a valid reason behind on how the Obama’s governments come up with that kind of decision. I still believe that it is sill for the betterment of the people that surrounds him.
ReplyDeletekick that can
ReplyDeleteI'm going to be a bit cynical here, and point out that as far as I can see, the credit isn't really about helping homeowners, it's about helping the bankers and bondholders that lent current homeowners the money when THEY bought at grossly inflated prices. Trying to slow RE declines enough for them to unload those toxic assets.
ReplyDelete-Jim A.
Suddenly - "inevitable" means it wont fall in the slightest.
ReplyDeleteAdjusted for inflation it does nothing but add to the debt. It's stupid. You cannot create an artificial bottom without having it fall out in some manner. Look at Japan's housing bubble, that's what we're trying to buy right now. It will trap more people under insane debt that they won't be able to break even on for at least a decade.
"However, to me, it seems difficult to say "this program screws me." Society stabilized the real estate market by intervening in the financial crisis."
ReplyDeleteThank you for your thoughtful comment Mark F.
I'm going to hold hope in having too many variables to predict, too.
I'm not too knowledgeable about real estate and the economy and find this site and it's postings extremely helpful as I try to learn and keep informed...
Thanks to everyone...