Do you sense tax credits given to induce the purchase of a home to live in have a positive or negative long-term impact on the real estate markets?
- Negative effect. (51%, 52 Votes)
- Positive effect. (26%, 26 Votes)
- Tax credits have no long-term impact. (23%, 23 Votes)
Total Voters: 101
Turns out the 2009 federal homebuyer tax credit policy left the recovery in a stagnant ditch by the road rather than accelerate its arrival as intended.
Government housing subsidies have generally been considered catalysts for post-recessionary economies (as in 1975, the year of the prior set of housing tax credits). However a recent analysis of gross domestic product (GDP) growth projects the recovery after the financial crisis would have been stronger and more sustainable without the meddlesome homebuyer tax credit.
The analysis parallels the sharp increase of home sales volume and prices the housing market experienced in the months following the reinstitution of the credit policy in the summer of 2009. Also mirrored is the quick plummet in sales and prices that occurred just as the tax credit was extinguished in May 2010. [For more information on the analysis’ prediction of an alternate economic recovery, see The Atlantic’s chart, Home Buyer Credit’s GDP Bump from Residential Investment.]
first tuesday take: An organic long-term recovery fashioned by doling tax credits to homebuyers is illusory. Government housing subsidies inject the housing market with a sugar high and set it up for a subsequent crash. The prior 1975 tax credit subsidy set off an inflationary spiral in real estate asset pricing which destroyed real estate values well into the mid-1980s.
The only players of the real estate game who stand to benefit in real estate subsidy schemes are lenders, agents, brokers, builders, speculators (momentum jumpers), escrow companies and title insurers (i.e., not the homebuyers as they are merely conduits for passing the credits on to the sellers) and —
Wait. All of this sounds really familiar. Perhaps it’s because we’ve been saying this since that fateful summer of 2009…
To review how first tuesday tracked and appraised the homebuyer tax credit’s effect on the housing market from when it was reintroduced in 2009 to when it ended in May 2010, see the following articles:
- October 2009: Some perspective on the recent increase in home sales volume
- December 2009: Homebuyer tax credit part 2: return of the subsidy
- January 2010: The post-Bubble bump: Speculation or resuscitation?
- March 2010: Getting rid of housing subsidies: the mortgage interest deduction
- April 2010: Trends in California April 2010 sales data
- May 2010: Federal housing tax credits = success?
RE: “One Cause of the Uneven Recovery: The Home-Buyer Credit” from the Atlantic
As predicted when first announced, A bad idea has now come to fruition! Everything that this administration has done requires someone to get a payoff in order to succeed. If you don’t let the market cure it’s own ills, nothing will ever seem normal again! If your business model requires a tax credit or any other incentive to make a sale – You’re in the wrong business!!
I have a client who is now losing his house because of this so-called tax credit. Evidently, the tax credit of $8,000 has to be repaid in 15 months starting now. His job just cut back his hours and is working only 4 days now. He bought his house 3 years ago for $280,000 and the house is now worth only $195,000. The highest comps are $210,000 in his area. The reason prices are declining is because the taxes are so high with the Special Assessments at $380+ a month, his payment went up $2,600. On top of this, the payment for the tax credit? Yeah, good intentions, BAD idea.
On “first Tuesday take”
I’m perplexed on Ms Trans comment:
“The only players of the real estate game who stand to benefit in real estate subsidy schemes are lenders, agents, brokers, builders, speculators (momentum jumpers)”
Is that the distribution infrastructure for the real estate market?
Isn’t First Tuesday a supporter of agents and brokers and its raison d’état?
I think Ms Tran and we would be better served if she worked for the FHA (more homeowner oriented) rather than First Tuesday
Ok LOOK, the fed IS chase bank, chase bank is the fed, LOOK it up. Google the fed. if the fed can put you deeper in debt, they will. thats how they make $$ now chase and other banks got caught stealing. I mean selling worthless secure mortgages, to investors, the bubble popped on them before they could get all the money. so fed cries to congress who gives trillions of future tax income , to the banks/ to the fed. So enjoy your debt and no new jobs. fed,,,congress and O LOOK it up/
I find it absolutely ludicrous that the FederalGovt. Gave out tax credits for first time home buyers during the stimulus, and it WAS working well to clear away the backlog of REO’s ,and sell off remaining new homes. THEN THEY TAKE IT AWAY !!! Just when its working .Most countires around the world with similar economies to the US ALL give First Time Home Buyer Tax credits.Its better to have a young family in a home long term ,paying taxes ,building a family base ,providing work to builders on so on,than everyothet home selling to investors that will rent the housse out and thus drive up the rents.The system here in the US at the moment is insane !!! Look at the back logs of homes banks are sitting on when they could be earning % on getting them sold ,aspecially by using tax credits . I am beginning to think the powers that be, don’t want to fix this country and put people back to work.