Followers of Commercial Mortgage Loan Blog knew long ago that the housing tax credit was a dumb idea. We posted as much months and months ago. Now a study, by some academic types at Northwestern, have studied it and came to the same conclusion:
The housing tax credit:
Great, another $22B down the rat hole. Read Tax Prof’s post about the study here.
A subsidy by any other name is still a subsidy, and they don’t work no matter what you call them.
By giving buyers an $8k “tax credit” the hapless Obama administration, enabled by an incompetent congress, simply albeit artificially, propped up home prices to a level they would not have reached had the market been left to its own devices.
Now, when the tax credit goes away, millions of home buyers will instantly and simultaneously lose $8 grand in equity as the existing home market adjusts to the fact that most of the buyers have $8k less to work with.
Thanks for nothing!
Today’s housing numbers show a market that’s anticipating that inevitable evaporation of value.
Not only is this going to be a jobless recovery it’s likely to be a recovery-less recovery.
We here at MasterPlan Capital generally love tax cuts, tax breaks and tax credits of all sorts, but we are Leary of the government’s proposal to offer a $15,000.00 tax credit to all home buyers.
First of all it’s a big break to homebuyers at the expense of everyone else. Why should renters and other tax paying citizens who happen to be out of the residential real estate market subsidize other people’s American dream? Why should you or I be forced to help a stranger pay for his house?
Redistribution schemes don’t work because although Paul gets paid, Peter gets robbed. The result is, at best, a wash to the overall economy.
Secondly, it’s artificial manipulation of the market. The housing market needs to find its true bottom; meaningful recovery can not happen until it does. Paying people $15k to buy houses will certainly increase demand, but the market will respond to that demand with price increases until it equalizes. The equilibrium, however, will be false and the market will be subject to devaluation when the tax credit is taken away.
It is not the mandate of the US Government to favor one class of people (homebuyers) over another class (renters, single people, retired people, students) and government intervention always has unintended consequences; bad ones.
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The National Association of Realtors®, which has supported the Obama administration’s housing and stimulus plans, is opposed to the budget proposal that would reduce the mortgage interest deduction for thousands of families.
In a letter sent today to President Obama, NAR President Charles McMillan said, “There is never a good time to propose something that undermines the basic foundation of homeownership, but given our current housing crisis, this has to be the worst possible time.”…Read the rest of the post here.
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