This from my Arizona Republic real estate column:
As I write this, the entire real estate industry is on tenterhooks, waiting to see if the $8,000 first-time home-buyers tax credit is going to be extended.
It’s not really a tax credit, it’s a taxpayer-funded subsidy, a “gift” extracted by force from everyone who does not buy a house under the program. The money taken from taxpayers — either now or later by deficit spending — is money that cannot be spent or invested elsewhere.
And it’s not as though this were a zero-sum game. The actual marginal sales — the home sales that would not have happened without the subsidy — may have cost taxpayers from $40,000 to $75,000 each. And as huge as those numbers are, they ignore the interest cost of the borrowed money, the opportunity costs of mal-investment and the compound interest value of those opportunity costs.
Government action cannot create wealth. At best, it moves wealth around. At worst, government destroys wealth by taking it away from the very people who have new ideas and new technologies to invest in.
But as bad as this tax credit is, it’s only temporary. Someday it will end. The mortgage interest tax deduction — which almost no home-owners actually get — is forever. The government dominance of the secondary mortgage market — FannieMae, FreddieMac, GinnieMae, etc. — is forever.
And here’s the real kick in the head, given all we’ve been through in the real estate market over the last eight years: The National Association of Realtors reports that 59% of all new home loans this year were underwritten by the Federal Housing Authority, the Veterans Administration or the U.S. Department of Agriculture.
What this means is that a huge number of homes will have been sold this year with down-payments ranging from 3.5% to -5%. Six out of ten new mortgages are essentially nothing-down loans.
The U.S. government wants to buy your vote by making home-ownership easy. But the net effect of government intrusions in the real estate market is to create a standing wave of foreclosures amid steadily-declining home values.
Steal this book: I’ve written over 200 of these real estate columns. They are consistently one of the most popular features on our blogs. Many of them are dated and/or entirely Phoenixocentric. But many others are timeless and generic. If you want to use any of my columns on your weblog or web site, feel free. Three rules: Don’t change my text, credit me as the author and give me a link back to http://www.bloodhoundrealty.com/ with appropriate anchor text. Something like this, perhaps:
<a href="http://www.bloodhoundrealty.com/" target="_blank"> Phoenix Realtor Greg Swann</a> suggested I share this with you:
Am I link-baiting? You bet. The quid pro quo is free content for your site that pulls eyeballs and excites interest.
David Losh says:
You forgot to mention that with the uptick in prices the $8K has been lost to the consumers. When the tax credit does go away, and I hope it will be soon, Real Estate prices will return to a continuing decline.
November 1, 2009 — 9:38 am
David Losh says:
Seriously, in all the posts and all the comments about the tax credit no one has mentioned that this program was another gift tax payers have given to banks. Banks are turning a profit. A year ago banks were begging for money and a few hundred billion dollars later they are making profits.
Mortgage interests rates may be down, but consumer credit just hit 30% interest at another time when families need to borrow.
Mortgage companies get the benefits of this tax credit and consumers get nothing. Low interest rates are getting millions of people to reaffirm 30 year debts on declining asset values.
Rather than say the government is bad, and that these give aways to banks, that are too big to fail, are ruining our economy let’s remember that a free enterprise banking system caused a global economic crisis.
You hit the nail on the head in this one about foreclosures, no one should be paying a mortgage. Give the banks nothing. Rewarding banks for bad, very bad, business practices is wrong. It’s unAmerican. We should be throwing tea parties at our bank branches.
The banks made the loans, and continue to make loans, on over priced assets with declining value. In the next two years we will have another economic crisis when Census figures start coming in.
George Bush, on his watch, allowed banking to make very calculated swindles, then gave a life line of billions of tax payer dollars on his way out of office. Banks now should show they can do business in an honorable fashion, with out gimmicks, or fraud.
November 1, 2009 — 10:39 am
Aaron Catt says:
Finally, a fresh perspective from someone about the Tax Credit.
Basically as another person has put it, it’s just another way to try and sustain something that is unsustainable.
Thanks for the permission to use the content, you can be sure that I will be echoing this voice of reason on my blog at the http://boiserealestatesoup.com inspite of my normal ‘support’ of the credit. Perhaps I’m more guilty of providing the info rather than touting it as a necessity to an improved market.
November 1, 2009 — 6:25 pm
James Boyer says:
That is funny, as I have said in another comment of all the deals that I have done this year only 1 of them was the home buyer getting the credit. On top of that, only 2 of the deals that I did this year were less then 20% down deals, and one of those was a 10% down deal. So do I just have that much more of a qualified client base? I would not have thought so…
November 1, 2009 — 8:30 pm
Robert Worthington says:
very well said Greg. I think our government needs to take a “CCIM” course and learn about return on investment or as you put it, opportunity cost. Great article.
November 3, 2009 — 2:16 pm