A Home Buyer Tax Credit, Version 3. For or Against?
Another tax credit for home buyers? Not very likely, but if it were to come trundling down the pipeline when our dear Congressional representatives punch back in from their Summer vacays and try to get reelected, would home builders support it?
Again, would home builders “just say no” if the government asks nicely whether it’s okay to stimulate the “engine of the economy,” to stabilize home prices by stoking home buyer demand yet again?
We’d bet on it.
Yet, trundle down the pipeline the proposal may, for after the lagging indicator rout that has been existing- and new-home sales data for July, and the widening gyre of high-anxiety the data has set in motion, the powers-that-be in Washington won’t discount a home buyer tax credit redux as a preposterous notion that would result in summary political extinction.
Here’s HUD Secretary Shaun Donovan’s non-denial denial to CNN yesterday, as reported by Reuters.
“It’s too early to say whether the tax credit will be revived,” Donovan said in an interview on CNN’s “State of the Union” program. He said the administration would “do everything we can” to stabilize the shaky U.S. housing market.
So that’s different, isn’t it?
Actually, Mr. HUD Secretary may only be being polite in answering the question of a mainstream media reporter who thinks Washington must continue to try to fix everything that’s broken.
We know that a few short months ago, on the ramp-up to the expiration of the credit April 30, nobody with a prayer of getting a seat in the wake of mid-term brush up this November would have “gone there.”
That’s partly a function of things having gone pretty okay pre-April 30, as far as talk of a housing recovery. If housing rebounded, could the broader economic recovery get even more traction and eventually translate into job growth? There was a collective inhale, which turned out to be pre-mature.
Clearly, now, things continue to compare modestly better than the worst of times just after the October 2008 cataclysm, which is probably as good as anyone could hope. Remember, then, everything looked as if it could and would only get worse.
What surprises us now is that so many are surprised about the numbers that came out last week–especially among folks who say their operational m.o. is to expect the worst and hope for the best. Recall that, until April 30, Uncle Sam was giving buyers a little giftie to spur them on, and giving sellers at least some of that giftie to get just a bit of a cushion in their asking price. All in all, a kind of housing Dyson vacuum cleaner.
So who would not have moved on that $6500 or $8000 opportunity when the getting was good? Wouldn’t every last one of the critters out there who could ante up the downpayment and secure the loan have done it?
How would there not be a dramatic, even a historic, fall-off in sales for a month or two after the program expires?
Still, to hear even some of the smarter business analysts, you’d think their only familiarity with how housing works comes from buying, selling, or refinancing their own places. The tax credit expiration dates–both last November and this past April–have been the only catalysts of action in the market place for more than three years. Other than that, it’s virtually been a no-bid environment.
Those two deadline dates in November and April did a couple of things–they resulted in diminished absolute inventory of new-homes, and they moderated home price declines across a protracted period of time.
What the market lacks now is any force of conviction or moment–such as fear of missing out–that can create real demand out of the raw materials of demand. While “absolute vacancies” is a real number, and a daunting one, demand, everyone knows, is a highly variable number. Demand varies. The proverbial adult child in the basement, and the aging parents in the spare bedroom are part of our stereotype for pent-up demand.
Housing starts versus anti-depressant and anti-anxiety medication sales must be a pretty telling inverse curve relationship for the past few years.
Yes, prices will give ground in many markets, and those declines will continue to make headlines. Foreclosure sales will speed up, and the fact that private sector hiring–Friday’s all-important data release this week–continues to be tepid to non-starting throws a wet blanket over any number of drivers toward household formations.
What we’d observe is that over-reacting to data–which may be a key cause of over-reaching on the house price correction–takes two forms. One, over-reacting to technical data versus looking at the real-world factors–such as household formation and job formation–that directly impact the data. The other is over-reacting to nearer-term, and one-off data points rather than looking beyond the next three to six months and looking at longitudinal trends for insight. As a result of such shortcomings, analysts and journalists jump on the bus of negativity because it sounds smarter and more counter-intuitive to be negative, which is what analysts and journalists want.
Joe Nocera, a top-flight New York Times business journalist by way of Fortune magazine, who writes, reports, and analyses with the best of them when it comes to corporate business stories, just doesn’t appear to get it as he tries to put two and two together about housing’s current travails.
Essentially, every participant in the housing market has a reason to be afraid. And that fear is paralyzing.
Nocera litanizes how “every participant” is curled up in a fetal position now, but neglects to note that this is all about money and value. Fear becomes greed in short order as soon as somebody puts a floor under the value of properties. It surprises us that Nocera could write:
At the same time that the administration was offering a hefty tax credit to spur home sales, the government’s wholly owned subsidiaries, Fannie Mae and Freddie Mac, were imposing rules that made it increasingly difficult to buy a home. And Fannie and Freddie have the ultimate say these days because without their guarantee, Wall Street securitizers won’t buy a mortgage from a bank — because Wall Street is just as fearful as every other participant in the market.
It’s scary when a guy who’s been known to go for the jugular when he’s going after corporate hanky-panky can portray Wall Street’s titans as “fearful” about anything. They’re not fearful, Joe; they’re simply waiting for the blood in the streets to get deeper before they move into the market.
The point is, most reaction to the grim data reports on housing in August is over-reaction. It seems that government officials and aspiring denizens of Capitol Hill are ready to run with the over-reaction of economists and journalists as some populist standard.
But home builders and developers have had enough of tax credits for home buyers. Home builders and developers want two things. They want government to stop spending programs that trigger heavier tax burdens on those in households and businesses that are paying taxes. And they want government to remove bureaucratic barriers and costs that get in the way of businesses carrying on business.
So we’d bet that any initiative to resurrect a home buyer tax credit will get vehement opposition from an industry are that wants nothing more than for private sector dynamics to reestablish a footing among people who’ve made improvement in repairing their houshold balance sheets.
That may take a while, and it may take longer than it would have if Washington had never introduced its barrage of housing supports dating back to 2008. We’ll never know. That’s past. But the new Congressional season is the future, and it paves a campaign path straight to the first week of November.
What are you going to support?
Comments
One Response to “A Home Buyer Tax Credit, Version 3. For or Against?”
Leave a Reply
The faster we burn off the standing home inventory, the quicker home prices will stop falling. Thus the market can normalize. As homeowners feel safe with the value of their homes once again. Consumers will spend, and job payrolls start to grow. If the tax credit stimulus was used as “The Tool” in Obama’s first stimulus program, and not just for ” first time buyers,” but for every homebuyer including investors, our economy would have stabilized two years ago. Our politicians haven’t focused on the main problem in our economy. It’s about Stablizing the Housing Industry Stupid.