Extend the $8,000 First-Time Home Buyer Credit?
by Rob Cook on October 23, 2009
Unfortunately, I would say no.
I’m a real estate agent AND firmly against extending the $8,000 first-time home buyer tax credit. I fully know that this statement is heresy to my fellow industry mates – sorry guys & gals, I gotta be me. While I personally may have been involved in a sale or two in which the buyer intends to take advantage of the tax credit, I don’t think this plan to rig the market really brought quite so many buyers into the market who wouldn’t have already been there in the first place. Bad economy or not, people’s life situations change (marriage, kids, death, divorce, etc.) every day. Most of these sales would have occurred without the tax credit.
As argued here, the real cost of this tax credit per buyer who would have not bought a home had it not been for the tax credit is actually $43,000 per buyer motivated by the tax credit alone . To have Joe Taxpayer fork over up to $15,000,000,000 as a handout isn’t right, and only serves to distort the market and the true value of the homes churning through the system. If they extend this program, there goes another $15 to 18 Billion in money we’ll ultimately borrow from China to only make politicians and industry players feel good about themselves.
Plus, this program may have falsely driven prices higher for those buyers who didn’t need the tax credit to buy the home of their dreams. Let’s say you’re in the market for a cute-as-a-button three bedroom, two bath, one car garage home in the low $100,000’s. Without the tax credit there may be 26 other buyers in the market right now for that same home. However, with the tax credit there are now 31 other buyers for that same home. Simple market forces dictate that you, as a buyer, have to bid higher than you normally would have because there’s an additional group of buyers clamoring for that same home. Sometimes (actually most of the time) I don’t think politicians think their wonderful programs through and the unintended consequences of their actions.
We all saw this affect on new car prices when the so-called Cash for Clunkers program was running. Dealers knew they didn’t have to take quite so much off the price in negotioation because those buyers in the car market at that time were motivated by the free money they were going to get for destroying a perfectly good car. Now that program is over and car sales are back in the tank, exactly as they likely would be in a slower economy.
When these programs were first introduced I bought into them and played along, but now that I’ve had time to think about it and witness the effects, I am no longer convinced that this type of market distortion is needed. We, as an industry benefited so well for so long, it’s time we took our lumps too.
And yes, the bailouts for Wall Street, GM & Chrysler, and everybody else under the sun & moon were wrong, too.
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UPDATE 10/30/2009: It appears the the US Senate has a tentative agreement to extend and EXPAND the tax credit to the end of April, 2010. The details of the extension are noted here and here by Ilyce Glink, the final details are still in the works and won’t be law until both the US Congress and President Obama sign off on the deal.
Questions: If sales of homes are not quite what they hope for in March & April of 2010, will they yet again extend & expand the home-buying tax credits further? How much is enough? How about just simply sending everybody $50,000 of the Monopoly money that they’ve been printing on overtime for the last two years and see if that stimulates the economy (or voters)?
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