Home Buyer Tax Credit Is Dead – Long Live the Tax Credit!

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The end of April in Las Vegas was like using a time machine to go all the back to 2005. We saw something I thought was gone forever – lines at new home developments! Of course we know that it was because the $8,000 or $6,500 home buyer tax credits were expiring. Most local builders were guaranteeing delivery of homes for anyone under contract by April 30th.  To what extent the credit helped won’t be fully known for several months yet.

But what now, Batman? Did the stimulus actually help the economy? Did it merely push future demand forward? There are arguments for and against both questions. As usual, time will tell.

Accelerating Demand

Many people say that the tax credit only served to push future demand to the present day.  They argue that the people who took advantage of the credit would have purchased homes anyway. If correct, it may have been a colossal waste of taxpayer dollars. It could also mean that the effects will be short-lived and the housing market will have an even greater slump later in the year since those who may have purchased then have already done so.

To be sure, that belief is at least partially correct. But did people who may have otherwise rented purchased instead? There is little doubt that some did. The question is did they do so in significant enough numbers to make a difference? That remains to be seen

 Priming the Pump

In its simplest form, an economy is nothing more than money in motion. When money is moving in sufficient quantities everything is good. When the money stops the economy stagnates. When a water pump becomes air bound nothing flows through it; priming it with water can get it working again.  That’s the theory behind an economic stimulus. By priming the economy with stimulus dollars, such has the home buyer tax credit, the economy can start working again.

The argument here is that the housing numbers will start looking better and people will become more confident and feel better about buying a home. The home building industry also receives a much needed shot in the arm. If that argument turns out to be correct then the stimulus was a good thing. If it’s wrong the housing sector may be worse off than before.

True Beneficiaries

The stimulus is certainly going to make the housing numbers better than they would have been otherwise. The timing of it all is curious. The tax credit expired last month and contracts must close escrow by July 1st. That means the housing numbers released in the fall are almost certain to show a nice uptick. So what happens in the fall? Elections! Care to make a wager on how many incumbents up for reelection will take credit for an improving economy? Maybe I’m being too cynical, but somehow I don’t think so.

I don’t make jokes. I just watch the government and report the facts.Will Rogers

Photo: philscoville/

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2 Comments

  1. It does appear that the “acceleration of demand” phenomenon took place. Regardless, it was good while it lasted as it took some of the inventory off the market and so hopefully when the employment turns around, the real estate recovery will be so much stronger.

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