We are so used to seeing our Government concoct various schemes to do this that or the other thing only to have them do something totally different. It seems that unintended consequences are the order of the day and unexpected results are the norm. That’s why it’s so surprising when something does what it’s supposed to.
Specifically I’m referring to the first-time buyer tax credit, which was part of the economic stimulus package. Home purchasers who have
not owned a home in the past three years can receive a tax credit of 10% of the purchase price or $8,000, whichever is lower. This is a dollar for dollar credit, not a tax deduction. Buyers using FHA lenders can actually receive the credit at closing to offset the cost of the purchase. (program) However they must still bring at least a 3.5% down payment to the table.
not owned a home in the past three years can receive a tax credit of 10% of the purchase price or $8,000, whichever is lower. This is a dollar for dollar credit, not a tax deduction. Buyers using FHA lenders can actually receive the credit at closing to offset the cost of the purchase. (program) However they must still bring at least a 3.5% down payment to the table.A Rush to Build
The idea of the tax credit was to provide an incen
tive to buy a home which would, in turn, stimulate the housing industry and the economy as a whole. There have been tax credits and incentives before but this one had a specific deadline attached. To take advantage of the credit the first-time buyer must purchase a principal residence prior to December 1st of this year.
tive to buy a home which would, in turn, stimulate the housing industry and the economy as a whole. There have been tax credits and incentives before but this one had a specific deadline attached. To take advantage of the credit the first-time buyer must purchase a principal residence prior to December 1st of this year.This deadline has created a rush by builders to have homes completed in time for buyers to qualify for the incentive. The most recent housing numbers bear this out. New home construction in June reached its highest level in seven months. Granted these numbers are still way below the peak of recent years, but it is still moving in the right direction. (article)
A Ripple Effect
With a recent Federal Reserve report (article) saying that unemployment is expected to top 10% this year, an uptick in construction is most welcome. This construction does more than create jobs for construction workers, it provides employment for others as well. New home salespeople can earn money, furniture sales will increase, home improvement stores will see an increase in business, insurance agents will write new policies, mortgage brokers will originate more loans, and on and on it goes.
Just as there was no one event that triggered the recession, it will be a series of seemingly small occurrences that will lift us out. Lately it’s been very easy to look at the comedy of errors that led us to where we are. Perhaps it’s time to start watching the little things that will return us to prosperity in time. Perhaps one day we’ll even marvel at the fact that the Government actually did something right. Now that would be different!
The best way out of a difficulty is through it. - Will Rogers
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“This deadline has created a rush by builders to have homes completed in time for buyers to qualify for the incentive. The most recent housing numbers bear this out. New home construction in June reached its highest level in seven months. Granted these numbers are still way below the peak of recent years, but it is still moving in the right direction.”
What exactly is the “right direction?”
Why are we comparing this year’s stats with that of recent years (which was obviously a boom time)
Why not compare to more “normal” historical statistics?
New home construction could be a seasonal adjustment.
With a glut of foreclosed homes on the market, caused by relaxed underwriting standards, in turn caused by past government attempts to increase affordable housing and expand home ownership, it seems to me that this most recent government panacea is no different than-and will have no different effect than-those of the past. Unintended consequences indeed.
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