The last iteration of the repeat homebuyer tax credit and the first time home buyer tax credits expired on April 30, 2010. After their expiration, demand for housing utterly collapsed despite record low mortgage rates. Currently there is a huge overhang of homes on the market (over 12.5 months worth). The excess supply and lack of demand are causing house values to drop. Nobody knows where the market will settle, but many are predicting declines of 5-20 percent over the next year or two.
One would think that this clearly demonstrates that the tax credits did nothing more than accelerate sales from the summer and fall into the spring, providing a temporary lift to the housing market, which resumed its decline as soon as the tax credit was withdrawn. In short, we dumped billions in taxpayer money into the housing market for no real price stabilization.
Surprisingly, the Obama Administration has not ruled out bringing back the tax credits. According to a New York Times article, on Sunday HUD Secretary Shaun Donovan was quoted as saying:
“It’s too early to say whether the tax credit will be revived”. Donovan said in an interview on CNN’s “State of the Union” program. He said the administration would “do everything we can” to stabilize the shaky U.S. housing market”.
Another tax credit may stabilize the market temporarily by goosing demand for homes, as it did before. Our current experience suggests that the lift would be temporary, at which point housing prices would resume their decline to whatever level is naturally dictated by the market (unless other conditions, such as the labor market, were to improve in the meantime).
It seems clear to me that the tax credits were bad public policy, and likely cost taxpayers billions of dollars that caused no long term benefit. Despite this, I wouldn’t be surprised to see this country’s politicians enact another tax credit in order to curry favor with voters in November. If there are any further developments in this story, I will be sure to update this space.
Do you disagree with me on the tax credits? Do you think they were good policy? If so, let me know why in the comments section below.
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Chris
August 30, 2010 @ 12:14 pm
As a residential real estate agent who is draining all reserves marketing homes for sale, I beg for the reinstatement. NO ONE seems to be thinking about the agents who are suffering. Okay to bail out banks, but not agents and homeowners.
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Tanya Reply:
August 30th, 2010 at 2:34 pm
I totally agree Chris. I too am a residential real estate agent. I am sucking wind…as a single parent!! And the banks just reduced my commission on a house from 6% to 4%….That hurt!!
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dukeson Reply:
August 30th, 2010 at 9:31 pm
after a storm there is a calm,all real estate agents must suck it up because of their past contributions.
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Earl Reply:
August 31st, 2010 at 7:12 pm
Dukeson did you fall down a hit your head again. Chris & Tony are trying to assist professionaly by moving product. I have a referal for the both of you the current tenant at 1600 Pennsylvania Ave will be looking for a home in a couple years drop a card off….
kevin Reply:
September 1st, 2010 at 10:47 am
“assist professionaly”
LOL you mean get their piece of the pie, their ridiculous commissions.
No other industry is as undeserving of our tax dollars right now as the real estate industry. All the cockroaches got fat from the bubble and are now kicking and screaming that the money isn’t pouring in like it used to. You can mark my level of sympathy right along the lines of a pickpocket that can’t steal any more because of arthritis.
ZO Reply:
November 2nd, 2010 at 3:19 pm
Earl have you bumped your head, Obama want need a house for the next 6 years, He will be reelected.
kevin Reply:
September 1st, 2010 at 8:52 am
Agents were the main culprits that profited from the housing bubble. I am sure you’d love for tens of billions more of our tax dollars to do NOTHING to help the economy other than line your pockets. Agents are such self-serving cockroaches. As a taxpayer, I’d rather see selfish RE agents starving in the streets than have that happen.
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Brendan Reply:
September 1st, 2010 at 9:50 am
No one seems to be thinking about those agents who are suffering? I am. I am thinking they deserve every single misery that comes upon them. I cannot believe in this day and age, an agent would come out publicly and cry about how they need MORE stimulus money just to keep you in business, after you and your ilk were implicit in this whole mess. (No one bails out the agents?!?! What the F do you think the first time homebuyer tax creidt was?? You are a f-ing moron) You are a parasite. Get off the government teet and get a real job. The days of driving yuppies around in your leased Lexus SUV for 12 hours a week and pulling in $100,000 a year in commission are over. Deal with it.
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Pamela
September 1, 2010 @ 1:21 pm
Are all of you serious here?
First, Realtors were not responsible for the current housing crisis. The brokerage they receive is for a service that they provided (ie: marketing the property).They were not responsible for overextending their customer and clients credit and letting homebuyers get into financial disaster. They sold the homes that their Buyers made the decision to purchase.
BUT! Second, sorry guys, but there is no reason that Realtors shouldn’t suffer along with every other American facing financial difficulty. They say, the tough will survive. Suck it up, tough it out and quit whining.
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KMP
September 1, 2010 @ 5:16 pm
They should extend tax credit until 2010 and see what is difference in each month.I think they will extend first time home buyer tax credit.
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Andrea
September 22, 2010 @ 4:13 pm
I am currently looking for my first house. Really, I am not thinking about how much the realtor will make or how much they wont. I’m looking at how much I can spend and how much money the bank will give me. Get this- you can file bankruptcy and get a loan before a person such as myself whom payed for their own schooling, has a steady reliable job, and pays her bills! Something is wrong with this picture. That is the problem. Everyone is struggling. I’m try to own instead of rent and I’m being hasseled! Bring back the tax credit PLEASE. 8000 would be a nice savings!
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Allen
October 26, 2010 @ 8:42 am
I also agree with a return of the tax credit. My family and I are looking to sell our home and buy a home. However, we, like a lot of Americans, can’t come up with the %3 or %4 needed for a down payment. Nor can I refinance because I don’t have enough equity. So we are in a holding pattern until we can get just a little help. Please bring back the tax credit!
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Mark
November 1, 2010 @ 1:56 pm
I’m an agent, but I think the main advantage to a home buyer incentive is all the ripple effect business it stimulates when people move into new houses, it does not stimulate big commissions because first time buyers buy inexpensive homes for the most part. I work about 50+ hrs a week, with lots of first time buyers and still managing to make $60K maybe, but then I pay for all the marketing of the homes, my own insurance, etc. Yeah, there are/were some fat cat agents in the leased Lexus, but those are actually few and far between, most are trying scratch out a living like me, and its normal to go a couple months without a paycheck, but you have stay with it. I like houses, and I like my clients, so I like my job, but working on straight commission is not easy, and most transaction are a bear these days, tense conversations all day. I have a bit more freedom than the office worker, but no check every other Friday. So don’t so mad at real estate agents, like anything, when its done right its quite a lot of work and a valuable service, at least my clients would say so.
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Rickie
November 23, 2010 @ 11:56 am
I believe they should bring back the tax credit for one reason only. To help those who purchased a home without an incentive. I signed on my binding contact mid June 2010 and closed in September 2010 and do not qualify for the tax credit. Anyone who closed before November 2010 should have qualified, not just the people who had binding contracts all the way in April. These short sale homes are a disaster and most of them need a lot of work. The $8,000 would have been a huge help to us. It took us almost two months to prepare our new home because we couldn’t afford all of the maintenance and restoration it needed before moving in.
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Chris
December 3, 2010 @ 8:17 pm
I agree with Rickie. I think they should bring back the tax credit as well. I helps people who are on the bubble to take the big step. I agree that houses will continue to fall, but not at the rate that they would fall without it. Slowing down the landslide may not be the long term fix, but it definitely gives the market more time to recover and reduces the panic. It will take time for the economy to completely stablize, but I think it is much better now than it was 2 years ago.
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Aaron
January 23, 2011 @ 11:15 am
Wow, some of you have it all wrong. Real estate agents were not the cause of our financial and home crisis. Yeah just like in any business there are few that ruin it for all. So yeah I am sure there were some shady agents, but the fall came from people buying homes they really could not afford. Doing balloon mortgages with very low rates and payments for first couple years and then it jumps up. Now that person can not afford their 250k house let alone all the credit card debt they built up to furnish and put tv’s in every room. If this country would stop spending outside of their means we would not need stimulus packages nor the govt to get involved. However, we just continue to want want want want want and without govt getting involved we would have just crashed as a nation/world as far as finance goes. If govt didnt bail out banks and help with mtg crisis our entire currency would have failed and you wouldnt be able to go to bank and withdraw your $100 or whatever you got let alone try to worry about trying to buy a house. So be very careful about how you talk or think about govt involvement. If you dont want too much govt then think before you spend. If you can not afford to pay off your credit card or pay your mtg then dont buy you are not only hurting you but everyone else in the world. You let you home foreclose guess what you just hurt all your neighbors cuz now their home is worth less. Think people. Be smart.
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Carl
February 1, 2011 @ 12:10 am
Here is the problem. Your uncle sam is broke too. There is no money to just give people to “help out”. The money isn’t there to just give away. Where do you people think the government gets money? Its ours. My tax last year was less than 8000 total. That means that if you get a tax credit just for buying your family a house (whitch should have nothing to do with the government) then all of my taxes and some of someone elses went to you so YOU could buy a house. WhY? Why is are you so important. Dont get me wrong, i wish someone would just give me a bunch of money too but getting the government to do it is what is causing our country to go bankrupt. And realestate agents…really? Im also in sales and wouldn’t it be nice if the government would reimburse people for buying what I sell but cummon. Is it really justified.
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Jim
September 22, 2011 @ 3:36 pm
There is a lot of anger out there. The gate keepers out there in giving loans out not the home buyers, it was the people that approved the loans that went bad. The ones that sold the bad loans as good ones. Also the investors who bought the loans without doing their homework. I see blaming the home owners much like someone putting a fruit display up with a sign that says free fruit. Then arresting anyone who takes any. There is a lot of different things that can be done to remove the overload of houses on the market, but the banks and others are saying its our way or no way. Without there help the market will continue to fall. The tax credit helped remove some of the overstock on the market. The money helped all levels of society. This is a good thing. The lobby group for home sales industury is lobbying for a tax deduction like you get on your own home, but for all other homes you own. Their thinking is that people will then buy up a lot of the surplus homes. In my opion this only helps the rich get even more money from the government. The government will have to help the real estate market, I like the idea that the money get spread around.
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