Recent news from the housing market has been extremely concerning. Existing home sales appear to have stabilized somewhat, but at a low level and new home sales hit a record low. Credit conditions for new homes are also tightening, further hampering the process. There is an overhang of foreclosed properties depressing prices. And finally, homeowners equity is low, indicating that getting people out of homes they can't afford will be much harder. Simply put, there are myriad number of reasons to consider helping the housing market in some form or another.
As such, we need to revamp the home buying tax credit. Will this "distort the market?" Yes. However, the market is already distorted to the low end, so consider this an equilibrium move. While some will argue we shouldn't use the tax code for this, I'll respond as a tax lawyer -- the code is littered with special interest tax giveaways. One that helps an ailing economic sector makes just as much sense. However, I would condition the credits phase out to something tied to the overall inventory of homes or months of available inventory number -- and, phase it out gradually; don't make it a "here today, gone tomorrow" affair.
Just my thoughts on the topic.
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5 comments:
I've been following your blog for quite a while, since before the '08 kaboom. This has to be one of the worst ideas you've put forward. Prices need to return to what people can afford. Period.
I say this as a person looking to buy soon. I don't want a credit; I want affordable homes.
Agree with matúš. Incentives won't help here. The only thing that will help housing get back is rising employment, so it's going to take a while.
In the meantime, if the gov't wants to do something, helping get people back to work.
If I remember correctly all the charts that were posted on this site, home prices have only dropped to the levels where they'd otherwise be if they were subject to normal inflation. In other words, where's the data that home prices are BELOW what they should be?
I've been quote this blog's figure that it would take 5-7 years for the market to shed the excess inventory. I don't like the idea of the government trying to re-create the effects that caused the crisis in the first place. Sometimes a market just flat-out has a glut of inventory. If the government was to get involved, it ought to bulldoze all the empty neighborhoods and stick the development companies with the bill. They'll whine but it's so they can come out ahead in the long run, and having the government back their excesses is a serious moral hazard.
The last thing housing needs is more uncertainty, and I think that is what another tax credit would bring.
Housing prices in Florida are in the midst of a second leg down. We need to work through that. Already people I know who bought houses with the first housing credit are underwater.
As an accidential landlord I didn't qualify for the last two credits and I doubt I would qualify in the future. For financial reasons it has been better for me to rent over the last three years as prices have been declining over this period. However, I would prefer to own my primary residence and I have been carefully watching the market for the last three years. If prices had been allowed to fall more quickly I might not have had to wait as long. Even if I qualified given that I own a rental property, I doubt a new credit would be large enough to offset the expected further price declines.
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