Home-Buyer Tax Credit Extension - Bad Idea

[drshang]

Prices of homes will bottom at the same amount regardless of how much or how long we extend credits, unless we extend them forever. All the tax credit does is slow down the price decline of homes - economics will dictate the bottom, padding it with tax credits won't do anything to keep housing from bottoming at a particular level.

The one use of the tax credits would be to keep prices from falling too quickly; if they fall too quickly you might have a "run on the banks" due to people being scared to keep their money in the banking system, causing further failures (bank balance sheets are backed by MBS, if MBS fall too quickly then people take out money from banks, further increasing MBS as an asset class on their balance sheet, which can lead to failure if MBS decline further). But IMO the housing tax credit doesn't do that and was never intended to do that.

[SXN]

Originally Posted by TimtheGuy

Off course it got some people off the fence. It also padded the pockets of those that were going to buy anyway.

I'm one of those people. I got a new job, moved to a new city and was planning to buy anyways. The 8k was cash in my pocket, didn't need it for the downpayment or to motivate me to buy. Used it to make some kitchen upgrades and to fund my Roth IRA.

Free tax payer money. Can't see how this is any different than letting people walk away from their mortgages with no repurcusions.

[chirack]

Originally Posted by SXN

Free tax payer money. Can't see how this is any different than letting people walk away from their mortgages with no repurcusions.

Ah this is very differnt than walking away from a mortgage. You took the money and spend it stimulating the local economy a bit. $8000 is enough to motivate some people who might have been on the fence about purchasing in this market to buy. It is also enough to spend on some redocorating and minor renovation.

That spending can stimulate some of the economy(Lets run down to home depot and get some paint vs. Lets save money in banks that are not lending atm).

As for folks walking away from their mortgages, well usually that was done with the bank's not taxpayer money.

The big problem is this kind of stimulus does nothing to hold up home values of the people who spend more than 250K because thoose are usually not starter homes. However it does help support the low end.