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