“There’s under consideration whether we extend the first-time homeowners’ credit,” Pelosi, a California Democrat, told reporters today in Washington. “And the question is, would that be just first-time homeowners or would you open it up to other purchasers of homes?”
∙ House to Consider Extending Home-Buyer Tax Credit [Bloomberg]
∙ $15,000 Homebuyer Tax Credit Cut, Conforming Loan Limits Restored [SocketSite]
why don’t they just lower everyone’s income taxes or payroll taxes or whatnot evenly across the board one time and permanently, and call it it for stimulus. i’m so tired of all this get a tax break IF you do this or IF you do that. why give people incentives to do things that they otherwise do not want to do, like buy a new car or take on a big mortgage. just give me my income tax break and it will eventually speed up my plan to buy all of the above anyway.
Because wealth is relative and if everyone gets richer by the same amount then no one is any better off. Being fair is not the goal.
condoshopper – because people like discounts and sale pricing, but look where that got US automakers.
Valentino – you’re making a wealth redistribution argument – oh wait that is the point, and not economic stimulus.
To paraphrase Milton Friedman, “Nothing is so permanent as a temporary government program.”
Legacy Dude – no kidding! Rent Control was supposed to be temporary too.
Wow, I didn’t know Socketsiters were so well read…Bravo!
And I agree with Valentino…should only give it to first time homebuyers otherwise we get into the same rut all over again.
On a side note, USA should adopt the tax policies of HK…one simple flat tax…but this is america and that would never happen.
Of course these supports just delay the inevitable and spread the price correction pain out over several years instead of just a few. The government is like 80% of the mortgage market today. What’s their exit strategy again?
Since I’ve already quoted Friedman, here’s another paraphrase:
“If you put the government in charge of the Sahara, in 5 years there’d be a shortage of sand.”
to all:
the reason why they are trying to stimulate housing is because they (correctly IMO) understand that the deterioration in housing must be stopped if the so called green-shoots recovery is to be maintained.
(where they err, again IMO, is they don’t understand that the green-shoots recovery is not based on economic fundamentals, and thus perhaps it shouldn’t be maintained)
The stimulus has nothing to do with homebuyers or the people at large. It has to do with the balance books of the various banks, Fannie/Freddie/FHA, the FDIC and the Fed.
Right now, the balance books of all the above are absolutely terrible. if/when housing deteriorates you will see further pressure on all the above entities. Fannie/Freddie are insolvent. as I predicted years ago, FHA and FDIC are basically on the way to insolvency (don’t worry, they’ll be bailed out by the taxpayers). There are arguments to be made that the Fed itself could become technically insolvent.
the banks (and FDIC/Fed/etc) are already sitting on Trillions of dollars of unrealized RE losses. If housing continues its downward trend we’ll see the next wave of write downs and bank failures. the only way to stop this is to slow the fall in housing.
thus the stimulus programs. stimulate to artificially raise housing prices, which will slow the default rates, which will slow the bleeding on the bank balance sheets.
It’s all for the banks.
another way of doing this would have been to do it the legal way. Allow the toobigtoofail monsters to fail, then set up a new banking system with new or recapitalized banks. But we chose to zombify. thus we have a bunch of half dead zombie banks roaming around hungry for brains… uh I mean capital. and they have captured our congress and our president and thus everything is being done to support them. including these stimulus bills.
as I said a long time ago: we made the mother of all bubbles. there is no easy answer. the answer was to never blow the bubble. we now have to pay for that bubble. We could let the old system fall, and perhaps a new stronger system would rise above. But that would cause immediate depression. NEVER palatable to a politician.
or you can Zombify and hope that things somehow turn out ok in the future. which is what we did. But the pain is still out there. You can’t avoid it.
they are trying EVERYTHING in their power to blow another bubble. and they might be successful… who knows.
that’s why I predicted earlier this year that we’d likely see the official end of recession in Q3/Q4 of this year, but that end of recession doesn’t mean recovery, and it leaves us at high risk for a “W” shaped recession.
the politicians don’t give a rats big butt about you and me. They care about 2 things
-reelection
-their politically connected powerful elite buddies (who will ensure that they are reelected).
any benefit that trickles to you or me is just an unfortunate side effect
countless studies have shown that people with higher incomes and net wealth are more likely to save more of the money resulting from either a 1-time influx or a tax reduction, than are people at the lower end of the spectrum, who are basically living on what they’ve got and what they make. They’re more likely to spend it. Giving a marginal income tax break to rich people does nothing to spur the economy, it just bankrupts public coffers, further putting poor people out of work. Reducing taxes on middle and low income people, on the other hand…
Furthermore, this lopsided free-money handout to home buyers is ridiculous. Other than the reasons mentioned above, it is a direct financial transfer from renters. You want to know why renters are resentful? Because renters watch their income taxes get put in the pocket of homeowners. A national economy cannot be based on people buying and trading around houses. That is what is called a house of cards. Or rather, a game of reverse musical chairs, where there are too many houses and not enough people to fill them, so that when the music stops, the gamblers left holding the houses for no one to live in are screwed and somehow we all collectively have to reimburse their losses.
blah blah.
In 2009, roughly 47% of households, or 71 million, will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center.
That fact absolutely digusts me beyond belief. Everyone should be kicking in, at least a little..
Anyway, I’m still predicting the credit gets extended.
CR has presented a lot of interesting thoughts on this issue. One problem is that this incentive is targeted only at 1st-time homeowners and results in few move-up buyers (because there are so many vacant homes and foreclosures), so it simply results in some renters becoming owners but nothing beyond that. But that leaves fewer renters, which drives down rents and only exacerbates the massively growing commercial (apartments) real estate problems for the banks.
It is a very expensive tax giveaway that benefits very few who need it and likely does more overall harm than good. Thus, I’m fairly confident that it will be extended. It’s basically irrelevant to the SF market in any event, except at the very low end where it has clearly caused things to pick up.
xsfr said it and i’ll echo it
this is all about the banks.
propping up home prices long enough to get the banks books cleansed of their filth is the choice that has been made. doing it with this supposed handout to the ‘little people’ is just a smokescreen.
the tax subsidy of 8k has greatly inflated house prices, and as such, those who are buying b/c of the tax credit are actually getting a worse deal than they would have without the tax credit.
but the leveraged gains are very helpful for the banks.
now, stating that the Fed is or could become technically insolvent – those are fighting words and even I won’t go there. What, you don;t like the dollar being supported by MBS? That isn’t the collateral you were looking for with your fiat currency?
Inflate home prices, banks will dump their toxic mess, then who cares – at that point we will be on to new problems.
All credit goes to those who have designed this massive dack door injection to the TBTF banks. They figured out how to keep the status quo. And in doing so they win. You can guess who lost.
They could have avoided ALL the nastiness of the past two years by just turning the mortgage interest deduction into a credit. IIRC the deduction is under $100B so turning it into a credit would have cost under $300B.
‘course, as a Georgist and someone who has a basic grasp of economics the whole mortgage interest tax break is dumb dumb dumb.
That fact absolutely digusts me beyond belief. Everyone should be kicking in, at least a little..
People rail against that, but with my Georgist hat on I’ll say the fact that the poor don’t pay much income tax is really a boon to the wealthy who own “income properties” as the euphemism goes.
Poor people rent, right? How do they pay their rent? From income, right? What happens to the rent they can pay if you reduce their income through higher taxes?
While I don’t know if it’s a 1:1 transfer, this observation doesn’t require rocket science to back up with evidence.
I agree with polip. Its about saving the banks and Wall Stret.
Notice how the Bush economic team transmorphed into the Obama economic team? Not a beat missed.
The banks and Wall Street are in control and the taxpayer bails them out. Socialism for the wealthy.
now, stating that the Fed is or could become technically insolvent – those are fighting words and even I won’t go there. What, you don;t like the dollar being supported by MBS? That isn’t the collateral you were looking for with your fiat currency
I actually laughed out loud at this statement. Well played sir. 🙂
No, Dede, rent control was not supposed to be temporary any more than Prop 13 was. Take all the price supports out of the real estate market first, and then you can talk about reconsidering rent control.
By the way, at least landlords have a choice about whether to take on the financial demands of rental property. Non-property owners have no choice; their hard-earned money will automatically be taxed to pay for the propertied class’s breaks.
No, Dede, rent control was not supposed to be temporary any more than Prop 13 was. Take all the price supports out of the real estate market first, and then you can talk about reconsidering rent control.
By the way, at least landlords have a choice about whether to take on the financial demands of rental property. Non-property owners have no choice; their hard-earned money will automatically be taxed to pay for the propertied class’s breaks.
No, Dede, rent control was not supposed to be temporary any more than Prop 13 was.
The SF Weekly in discussing the history of SF rent control disagrees:
Feinstein’s rent control law was intended to be temporary, lasting only as long as the hyperinflation that was then afflicting the economy. This initial version of rent control was intended to serve a definite group: “senior citizens, persons on fixed incomes and low and moderate income households.” People, that is, who were having a hard time paying rent.
a few more tidbits:
Here, though, the temporary fix has become permanent.
San Francisco’s initial form of rent control was temperate, especially when compared to what came later. Initially, rents could rise by up to 7 percent each year, meaning that landlords could adjust rents to keep up with even moderately high levels of inflation. Landlords were allowed to pass through costs of capital improvements that benefited an individual tenant, a provision meant to address concerns that landlords would cut back on maintenance of their properties once rent controls began limiting landlord income. When a tenant moved, a landlord was allowed to let the unit for whatever the market would bear.
http://www.sfweekly.com/2000-08-09/news/the-case-for-ending-rent-control/2
It amuses me to no end to find all these libertarians shocked, just shocked to discover that our economic system is structured to benefit the wealthy. Whenever the powerful are threatened, of course they will change the rules to keep themselves in power. When and where has it ever been different?
Right on NoeValleyJim !
Or like Michael Douglas (Gekko) says in the movie WallStreet,
For full disclosure, I guess I must add that I belong to the “two-third’s” category minus the “idiot” part 🙂
Another productive use of taxpayer money.
You’ll be glad to know that Gov. Schwarzenegger just signed seven new laws designed to restrict the worst mortgage-related excesses of the credit bubble years, so if indeed the tax credit is extended for another year, or worse yet, is opened up to flippers and speculators and amateur real estate investors, at least the tax money that is being redirected from hard working renters such as myself won’t be totally lit on fire and smoked up in a great big dubbie by shifty fly-by-night mortgage brokers and their partners in crime in the real estate sales and appraisal “industries”.
The gist: