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$8k Tax Credit a Clunker of an Idea

Can tax incentives truly create home buyers who weren’t already there in the first place?


The conventional wisdom is that an increase in buyers is what is needed to begin absorbing the excess supply of homes on the market, and by absorbing this excess supply, we will prevent a further erosion of values, and that this will begin a long-term and sustainable recovery of the housing market.


While an $8k tax credit might lure some into the market who may have been sitting on the fence, it seems to me we are simply robbing the pantry of future buyers, which will not contribute to a sustainable recovery. 


The report on the Cash for Clunkers debacle and the $24k marginal price per car is now infamous.  Similarly, in my opinion, the Home Buyer Tax Credit program could have the same effect.  And the immediate influx of buyers who are spurred to action by incentives are most likely buyers who were going to purchase anyway in the near future.


As a real estate broker in Central Florida, I am forced to join NAR if I want be able to  access the local MLS for my office and my agents.  I am very leery of any information put out by NAR, as I recognize they are essentially a trade union.


I found it interesting that NAR made a big marketing push over recent months with two very different messages.


The first message advised me to create a sense of urgency among my first time buyers so that they could take advantage of the $8k tax credit that was due to expire November 30.


But as that deadline approached, the next message encouraged me to lobby my local representatives in DC to extend the tax break so that it would not go away.


Something about those two messages coming out merely days apart just did not smell right.  I did neither, for several reasons.


First -  It’s a bad idea for government to try to create demand, especially with my tax dollars.  Government intervention has a long track record of distorting the allocation of capital in open markets.  In other words - when governments start monkeying around with supply and demand, things get out of whack. (How’s that for hard hitting, technical, economic analysis?)


Second - anecdotally I can tell you I have seen very little evidence of buyers who were lured back into the market because of the $8k tax credit.  Our office worked with several buyers who were eligible for the incentive.  Some were able to time their house purchase so as to take advantage of the credit.  But most were more interested in finding the right home at the right price instead of rushing the process to take advantage of the incentives.


Finally - each time this program is extended, we will forever be dealing with the problem of knowing when to turn it off.  And when we do – I can guarantee you one thing – somebody ain’t gonna be happy about it!


And one more thought… I am not one of those agents who will tell someone that “now is a great time to buy.”  That statement is so generic as to be almost completely meaningless.   I have yet to meet anyone who knowingly bought a house when it was a bad time to buy – think about that one for a minute.  You can’t time a market, and individual deals for individual needs are what make for great buys.

Disclosure:  no positions