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Should the $8,000 Tax-Credit be Extended? September 17, 2009

Posted by John Watch in Uncategorized.
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On track to cost the government $15 Billion, the $8,000 Tax-Credit implemented last winter has undeniably stimulated the housing industry. Now, with the November 30th deadline looming, questions on whether the housing market can survive without it are surfacing.

With Real Estate being Cyclical, Seasonal and Emotional, the cyclical Tax-Credit boosted seasonal sales, causing an emotional stir in the market. The plea, led by the NAR, is looking to extend the credit through next summer, expanding it to $15,000 and making it available for all buyers. If extended, the damage would amount to between $50 billion and $100 billion.

As mentioned in our Manhattan Condo article, we see signs of recovery in the market. An extension on the tax-credit would only ensure this fact. Due to the exclusivity, many homeowners looking to trade-up were unable to benefit. An allowance of the credit to all buyers would leverage the declining larger homes market, as the current credit has first-time buyers looking more towards mid-level and starter homes. While declines are epxceted during the winter seasons, an extension of the credit could curtail this fact. Also, more construction creates employment and consumer spending is helped with furniture and home fixture needs.

But this summers’ housing numbers were certainly dependent on the credit, causing an emotional high that, all things considered, is artificial. While no one would like to see any declining numbers in the housing industry, we must not forget about the factors that created the recent housing bubble along with its subsequent burst. As stated in the Housing in Crisis Report, overbuilding in specific areas and easy lending manufactured a bubble without the proper demand and financial security of homeowners to sustain it. At the end of 2008, property data from public records indicated an excess of 5 million homes on the market, a number that needs to be corrected severely.  An increase to $15,000, with mortgage rates now under 5% could possibly lure buyers otherwise unable to afford a new home with mortgages they can’t afford. Overbuilding would likely continue, and the steps to propping up another bubble would be in place. Also, could taxpayers afford to lose another $100 billion?

What do you think should happen? Whether there is an extension or not, the government cannot provide the credit forever; it will have to end eventually. The question is, what will happen after that?

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Comments»

1. Victor - October 6, 2009

Bad idea to extend it. Most people that bought were going to buy anyways. What the Tax Credit is doing, is to re-inflate the bubble because buyers “believe” they are getting money for free, and sellers/realtors are adjusting the prices up.

Let the free market do its job to clean up this mess! Falling prices is the solution, not the problem.

Eventually this Tax Credit program is going to have to end, and when it happends, it is going to be hangover (just as for cash-4-clunkers). The higher the tax credit, and the longer, the harder the crash (hangover).


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