A solid case for extending the credit, but with a troubling twist

Why not just give 8,000 a year to every homeowner? That would be the most fair.

Attention "greater fools" (a.k.a. people buying houses because they think the tax credit is a good deal):

Another argument against an extension: It would only temporarily boost home prices and potentially set up those using it for a fall. That's because home prices are likely to decline once the credit expires and interest rates ultimately trek north, according to Dean Baker, codirector of the Center for Economic and Policy Research. "Temporarily propping up house prices, so that a new set of homebuyers can incur losses, is a policy of questionable merit," Baker said in a CEPR column.

Yeah, putting an actual budget limit on these massive government handouts is pure crazy talk. What is Zandi thinking with his "twist"? Our children can afford it! We're worth it.

The housing boondoggle continues!
$8,000 for a family to buy a house is absolutely absurd. Why not give $8,000 to every RENTER? If you can afford a house, the God bless you, but if not, then save money and let the market come to you... The supposed "free market" we have in housing is a sham, b/c it it routinely propped up, subsidized, and manipulated. Why are we trying to bail out people who bought too much house for what they are paid? Let the market correct to where it would go without massive govt. intervention and then housing will ACTUALLY be affordable...

Scott raises the point that higher priced markets have affordability issues - regardless of the current, or perhaps an extended tax credit.

Where I'm not clear is the tax credit's impact on modestly priced markets across the country. In theory the credit should be fostering growth in any number of industries related to housing.

I'm looking for indicators that carpenters and other tradespeople are being called back to work - be it in Buffalo, NY or Butte, Montana.

finally a common sense approach, who better to help than those who will actually use it to create economic stimulus

“Solid case?” Even a quick glance reveals the argument to be intellectually embarrassing.

Even if Zandi is right that the credit would cost “only” $30 billion (the current credit far overshot its budget):

- It will cost the government $78,000+ for each additional home purchase, according to the proponents’ own numbers

- It will cost $85,000 for each job created. Why not just create 350,000 additional $85K jobs? Why should we focus all our efforts on creating jobs for sleazy realtors, mortgage brokers, and lenders? Aren’t any other people out of work?

- It will destroy the apartment industry, which is already facing record vacancy rates and terrible cap rates. Many more tenants will be evicted without recourse when their landlords go belly up

- It ignores the fact that we already have too much housing stock for our rate of household creation. Are we going to bulldoze the extra houses? Require divorces? Sue people who live with their families?

- It will create a new generation of underwater homeowners, since house prices will automatically drop again as soon as the credit expires

- It will further depress prices and sales when it expires by pulling demand forward—not creating new demand. Didn’t anybody see the devastating auto sales numbers after Cash for Clunkers expired?

- Housing has no chance of leading the country out of a recession anytime soon. This was not a normal business cycle recession, and there isn’t a normal business cycle remedy to be found. Unemployment will remain high, natural demand low, and household debt burdens through the roof.

- A credit will further deflect capital away from productive uses, and toward totally unproductive activities we already have way too much of: housing and financial services. This will be a long-lasting, and possibly permanent, drag on the economy

There is no conceivable reason to steal more money from the prudent and hand it out to the reckless, except that the latter are much better at corrupting the government—and the media.

Dave -- the issue is far more complicated than that. If the credit is extended to help the economy and stimulate home buying, does it truly help if it actually triggers bidding wars or a mini real estate bubble? We don't have to extend the credit at all; if we choose to extend it, we have to do so wisely. I am not sure that a "first come first served" setup is wise. Setting up cities like Boston (and we are not the only city in this predicament) for temporarily inflated pricing seems bad on its face. *If* we want the credit extended, there have got to be better ways to manage the cost.

I thought there already was an income cap, something like an AGI of $175k a year for a couple. $175k is not a lot of $ these days...

The tax "incentive" is for first time homebuyers of single family or comdominium homes, not for current homeowners.
Most likely there were some sellers that sold property during the "homebuyer incentive program" because a buyer was focussed on the $8,000. and not on the current value of the property.
"First come-first serve" would benefit home sellers and not homebuyers. If a homebuyer is trying to scramble to buy a home within a certain time frame because of an "incentive" they are adding undue pressure on themselves and could possibly end up overpaying.

I am pretty sure the limit for couples is lower than 175K. I had briefly looked into it and realized that my DH I and didn't qualify we made "too much money" and we are under 175K combined. That and the pesky other issue, I owned a condo already. So no matter what we were screwed. The 8K is just stupid it rewards foolishness and sets the wrong precedent.

Would I have liked the 8k? Of course, but I actually took a step back and realized how much that 8K would cost me as a taxpayer and then it wasn't so inviting anymore. I am however still very frustrated that others are getting the 8K, you can buy a house here you just need to be very disciplined and save save save. Being disciplined sucks some times, like now when our old "big" tv broke and we are watching a 27 inch tv, but you know what? After we save save save, that new "big" tv is going to look so much better knowing that we won't be sweating the payments. The same thing applies with our house but on a larger scale since the payments would be larger.

I am a first time homebuyer, trying to take advantage of the credit. I thought my credit was bad and that I couldn't own a house. I got that straightened out and got preapproved and started looking for houses in April. I have found the house that I want, but as of several weeks ago, I was already on the verge of not qualifying due to time constraints. There are technically 2 months left to the credit, but with the time it takes for the FHA loans to close right now (45-60 days), the program in itself has already ended for me now and I am awaiting answer from the lender (have been since July).

The assumption that it will create 350,000 jobs is either made up or based on normal buyer behavior. I'm not sure buyers will be as anxious to do the lavish renovations that were typical until 3 years ago. I don't think Zandi is fully aware of the current economic conditions.
As far as the $8k; it's not for the home buyer. It has only forced up the prices of target properties, the owners of which have the ability to payoff higher amounts to their lenders, making the banks more whole. The $8k is intended as assistance to banks.

The proverbial decline of the empire: Cash 4 Clunkers giving $4,500 handouts, Cash 4 Shacks giving $8,000 to buyers so home sellers can charge an extra $8,000, Cash 4 Bluehairs suggesting that seniors get an extra $250 because of deflation.

We CANNOT continue to give cash to people. We're broke on the backs of politicians of both parties, and we're happily lapping it up at the trough. All this money we're handing out to ourselves will have to be paid back at some point.

Perhaps in 2010 there will be a special assessment of $8,000 on all homeowners that purchased in 2009 to pay for this handout?

We just tried this with Cash for Clunkers and it failed miserably. It brought forward some 600,000 units of demand. Once the program ended sales volume collapsed.

When you bring demand forward, stealing it from the future, you eventually have to pay the price for meddling with natural market forces. That was the premise of the whole real estate bubble and subsequent crash. Lax lending standards and low interest rates brought huge demand forward. That sent a false signal to the economy which resulted in overbuilding and resultant hiring in the construction, real estate, home improvement, etc. sectors. Eventually there were far more sellers than buyers and prices started falling. The person who would have bought in 2007 had already bought in 2004. The house that would have been built in 2010, was built in 2005.

As for the $8,000 tax credit, I am 99.9% sure it will be extended and 95% sure it will be increased.

Hopefully, the credit will end and the prices of homes will drop if necessary to a stable point and everyone will learn a lesson. If we consider our house a investment, then we must learn that investment rise and fall. The seller wants to pocket the profit when the price goes up but they cry daddy government save us when the price goes down. If the tax payer is supporting the inflated prices then why can't we share int these profits. Maybe, profits should be taxed at maybe 50%. This might encourage the flippers to get OUT OF THE MARKET and the people who live in the house wouldn't be as quick to sell. In addition, all of the debt we have incurred would be paid by the beneficiaries of the home sell at the inflated prices, NOT OUT CHILDREN AND GRANDCHILDREN. IN this way, when prices go up a fund would be created to pay for the incentives when prices go down.

shortsalestressed said: "There are technically 2 months left to the credit, but with the time it takes for the FHA loans to close right now (45-60 days), the program in itself has already ended for me now and I am awaiting answer from the lender (have been since July)."
If your purchase is straightforward and your credit passes, there is no reason that it should take that long to close an FHA loan with the right lender. Call around and find yourself a "direct endorsement FHA lender" that closes with their own funds and does not rely on an investor's money to close the loan. A direct endorsement lender will have an in-house underwriter that has the authority to sign off on your loan without sending it off to the FHA or another investor for final approval. Try to find a smaller bank or lender because the big banks are backed and not built for speed. Then you should be able to close within the time frame needed. Good luck.