Why the 1st time homebuyer tax credit should be extended

Jolenta, I do respect your opinion very much.  I also respect you very much.  I do disagree with extending the tax credit.  Simply put, extending the tax credit is a great way to devalue the dollar even further.  I also do not feel like paying for anyones homes other than mine.  Eventually the real estate market will have to be without the tax credit, so why not pay the price now and get on with our lives.  We have to pay the price at some point right?  So why make our countries debt load increase more?

Robert, I respectfully disagree. We did not get ourselves into this mess overnight and it will be a long time before we emerge from it. And we cannot do it without spending money in the right areas that will stimulate the economy, an overwhelming proportion of which is comprised activity related to real estate. I'd hate to imagine how the real estate markets would have fared this year (and last) had there not been a housing stimulus. Most of my business this year has come from people taking advantage of the $8K tax credit. My volume is twice that of last year and the deals are less than half the size. You probably get the picture. But I'm not here to complain about how I'm working twice as hard as before. I've seen on TV entire communities living in tent cities and how families and children are suffering. I've read about the tens of thousands of homes that are unoccupied, in foreclosure, or worse (entire neighborhoods overrun with rats, or drug dealers buying up cheap houses that generate in excess of $1m of profit per year before they're abandoned & they move further North). As for worrying about helping someone pay for a home, that kind of thinking should be a thing of the past. I should hope that we have all taken a lesson from what happened last fall when the bottom fell out of the mortgage market: that our fates are wholly intertwined. In other words, you may not like helping someone afford their first home but it will only come back to bite you when the real estate market in your own backyard  tanks due to oversupply and too few buyers. No one likes to find out that their home is worth way less than they paid but that is the reality that many are facing.

Jolenta, thanks for the follow up.  I have not sold any homes to people who qualify for the tax credit on purpose.  If $8,000 is really going to change a couples world to the point where they can get into a home, they shouldn't be buying.  Based upon my beliefs alone, I choose not to sell homes to parties seeking the tax credit.  No disrespect to anyone facing money trouble or hard times.  Jolenta, people in this country need to start living there wage instead of keeping up with everyone else.  I've always said, the person with the least amount of bills wins every time.

Hi Jolenta,

I have the utmost respect for you as well.  But I am in Roberts camp on this. 

What many of us forget or never realized is that the real estate bubble and over building was directly attributable to stimulus in the form of excessively low interest rates from Greenspan and company.

However well intentioned it was to push rates low to deal with huge capital expenditues dealing with Y2K, the internet bubble, Worldcom, Enron, 9/11, and so on, the resulting delima was an over pumped economy based on record levels of debt, negative savings, can't lose attitudes, and a general la la land view of sound economics and monetary policy.

People holding cash could not deploy it conservatively and safely and obtain any real return after taxes and inflation, yet risk takers with little or no equity to lose were able to obtain control of property and leverage it to the hilt buying Harleys and Humers with phantom equity increases.  The real equity holder could get no real return and the gamblers with nothing at risk were getting phenomenal returns (on paper) until the great train wreck when the greater fool theory came into play.

None the less, when family economies find themselves in a financial hole, it is often wise to quit digging the hole deeper if you want to get out of it.  The same holds true for other economies being Cities, Counties, States, and Nations.  Each of those have dug huge holes for themselves as well and they must stop digging the whole deeper.  The stimulus is nothing more than robbing Peter to pay Paul and Peter more than likely was one of those that missed out on the glory of quick riches that Paul was enjoying, yet ends up losing in the huge chain of events that unfolded from that rampant behavior.

This is not a new phenomenon, and it should have been well understood by our politicians, The Fed, The Treasury, beaureucrats, regulators, lenders, professors, and the citizenry if they had been educated by our education system as they should have been.

Please take the time to read Thomas Sowell's Basic Economics which just came out this past year. It is fascinating reading and just reiterates where the problems usually begin and that is in elected persons (regardless of party) trying to do their constituency right by implementing well intentioned programs that have unintended consequences and propagate big government but never really cure the problem and often times making it worse or extending the duration.

Just my 2 cents!  Hope you are doing well.

Government simply needs to stop spending money and let the economy fix itself.  After all, when this government has no more money to spend, it will still fix itself.  How can an economy possible fix itself?  Easy...spend no more money, and pay off debt, period.  The U.S. should be the lender to foreign countries, not the slave.

It wasn't just low rates that got us into this mess. If that were the case we should be in big trouble right now with the historically low mortgage rates. It was the irresponsible acts of greedy lenders and large banks who sold exotic derivatives based on nothing of any substantive value because they were allowed to go largely unregulated. Economies do not fix themselves, not without a great deal of human suffering. Perhaps you've heard of The Great Depression? Allowing the housing market to freefall will only result in more suffering through even higher unemployment, greater numbers of foreclosures, more bankruptcies, etc. Home values will sink further as vacant and foreclosed homes become even more prevalent than they are now. It's a simple case of supply and demand. Check with your parents or some of your friends' parents. I bet 9 times out of 10 they got into their first home with the help of the GI Bill. You might also want to check with NAR - they are the biggest backers of the tax credit extension.

Read that book, it delves right into the heart of the matters you bring up.  The author, by the way is a minority that was raised in the tenements of a major urban area during very difficult financial  times and became a well respected economist and my favorite newspaper columnist. You will find it fascinating.

By the way, he also delves into agriculture policy and the unintended consequences of seemingly good ideas related to that segment of the economy.  I have much experience dealing with the ASCS - Agricultural "Stabilization" and Conservation Service.  ASCS policies started back in the depression are still in place and have created artificial surpluses and shortages around the world.  Feast and famine, just depending on where you are.

The major premise of the book is that we can all see the good that will come from something that will benefit us, but are seldom cognizant or care about what the action will do to some other individual, segment, locality, or country.  When the whole macro is looked at instead of addressing the micro, it is often better for the whole to do nothing and let the excesses take care of themselves, which they will.

So, I'm not going to battle with you on this, just sharing with you something you might really enjoy reading.

http://en.wikipedia.org/wiki/Thomas_Sowell

http://books.google.com/books?id=lhiIyq8ylUMC&dq=basic+economics&printsec=frontcover&source=bl&ots=52le_3wTkO&sig=qsgte5wrr6TgB6cahApFafahZuM&hl=en&ei=BS_KSsGVGYz8tgfYppDQCg&sa=X&oi=book_result&ct=result&resnum=6#v=onepage&q=&f=false

@ Robert

Don't kid yourself If you understand how money is generated from debt (with interest) you shouldn't be surprised at the fact that there isn’t enough money to pay off for the debt (private or public). 

Monetary system we live in is backwards and only serves a few who benefit from manipulating the system for their own benefit (primarily banks and big corporations). We have the technology and the knowledge to start moving in a WHOLE different direction; a direction in which rationing artificially scarce items, with money, for profits, would be irrelevant.

visit: TheZeitgeistMovement.com and TheV

and Watch: Zeitgeist Addendum - free on google video.

There is a very interesting and thoughtful conversation going on here: http://bit.ly/G1Q9t

"Sorry you are not a member of the group you are trying to access."

What Group is it Jolenta, it doesn't say when you get the LinkedIn message above.

National Assn of Realtors

Try this link to join: http://www.linkedin.com/groups?home=&gid=90005&trk=anet_ug_hm

I am with you Jolenta. The Tax Crdit is feeding me now. It is bringing buyers now. We need the buyers.

Thanks for weighing in @mikepannell. I hope you had a chance to click through to the complete article on my blog and log a comment there as well. Also, please stay tuned. I'm going to publish a follow-up piece showing a.) statistics indicating how well the program is working and the degree of support among the Realtor community, b.) statistics showing what Realtors perceive an extension (or lack thereof) would do to the market, and c.) statistics about how consumers see their behavior changing depending on whether or not an extension is obtained.

Mike Pannell, with much respect to you sir.  When the tax credit finally ends, are you going to tell me that you are out of business?  Common here...gang.  My business has increased over 100 percent from the previous year.  I also have not sold any buyers who want a tax credit.  I have even turned down one party because of my beliefs and did not even want a referral.   Are we actually going down the path that says, "we need government"?  Any bail out weather cash for clunkers or the tax credit is ludacris.  Most realtors want the tax credit because it's better for there own personal adgenda instead of what is best for the country (eliminating debt).

Example:  President Bush sent out $300 to $600 for all Americans to spend money to stimulate the economy.  Most people were thrilled, but not me.  I saw it this way...

1) people will spend the money as the government wants

2) people will pay down their debts

3) people will save the money

Guess what?  What happens when the money $300 to $600 per family was gone?  I said, we'll be in the same boat and the boat will start to sink because our debt load is increasing!  Look at the economy now.   Borrowing our way our of debt does not work.

Giving people free money does not work.  At some point in time, China will say, sorry United States, We (China) are not lending you (United States) anymore money.  At that point, the stimulating stops and the pain begins.  I would rather feel the pain NOW, instead of making it even worse and feel more pain later.

What part about Stimulus does not work, don't we understand stand.  The economy Must correct itself with the free market system.  Show me any article you want, and I will show you history.  Historical data that proves beyond a doubt, debt is dumb and cash is king.  No stimulus works...

Again respectfully written to those who disagree, we can disagree and still be friends.

Robert

For those of you interested in the statistical data and facts surrounding this issue, please check out my new post furthering the case for the extension of the first-time homebuyers tax credit.

I think the Cash for Clunkers hangover is beginning - the unintended consequences - no good source of inventory for the used car dealers - no good salvage motors for those that have clunkers and still couldn't buy a new car - the small segment that was shopping for new cars all rushed in and pushed the numbers up in the short term and depleted the demand for purchases of ne vehicles in upcoming months - the new dealers are now sitting on their hands and the used dealers are sitting on their hands.

The cure is to let prices find their level like water does and it can't happen if there is always someone tampering with this price discovery. The tampering ran the prices up, ran the prices down, and have effectively left the prudent frozen in fear as to what to do so that they don't get whipsawed - the answer unfortunately has been to sit on the fence. And again, the prudent will invariably be the ones that get hit with the taxes to pay the freight.

Really now, playing devils advocate, is it really fair that prices are perhaps too high and are kept propped up by the tax payer?  Wasn't affordable housing the mantra that brought all the programs and fixes that created the bubble to begin with?  If affordable housing was really the mission of Dodd and Frank and Greenspan and Fannie and Freddie and that grand mess they created, what is the problem with letting prices seek their natural price equilibrium dictated by supply and demand?

The whole problem is that housing was treated as an investment instead of necessity and a get rich quick scheme complete with tax advantages.  In the end when production of cellphones and televisions and other items have production increased enormously, the consumer enjoys reduced prices.  You can't just build and build houses with abandon and expect prices to rise and rise - the higher the supply the lower the price must be and using tax policy to prop up unrealistic prices due to over supply just seems wrong for the tax payer and for the person that is trying to buy.  Why not let the price of the properties decline to where they should be and then let the buyer get his benefit there instead of letting the tax payers pay the seller more than he should get by virtue of subsidizing the buyer?  It is a shell game and is rampant across the country in numerous industries that are gamed by the politicians via the tax code. 

If you look at the arguments for extending the tax credit for first time buyers.  The argument surrounds the "Realtor" and what is best for them.  Prove to me that the tax credit is best for the country as a whole and I'll agree.  Since giving people FREE money...or subsidizing buyers so home sales are inflated, JUST LIKE CARS SALES, is not proof of ANY economic recovery.  

Free money is for socialist thoughts.  Free money is the center, the core of redistribuation of wealth. 

Let me be clear to all REALTORS, if your business has been dependent on the tax credit; your in a world of trouble when it ends...

Free money is not the fix, and is not even a temporary bandage.  It's a deep dark hole.

Respectfully,

Robert

Let me expand even further.  When interest rates rises over the next 3 years and tax credit disappears.  The homes that where financed will be worth even LESS money. 

As the Interest rate goes up, guess what... economics 101 here folks...home values go down.

interest up and home values down...ok

so now,  the American tax payers financed bad debt because the mortgage purchased with the tax credit, is higher than the value of the home.  HA HA.

Interest will go up in a very short period of time, and homes go down.

Robert

Hey Jolenta,

This article made me think of you, Robert, and this post.  I hope ya'll enjoy it, it is a good read. http://desertbeacon.blogspot.com/2009/10/nevada-realtors-and-johnstown-flood.html

Hi,

The tax credit can't last forever, there is more pain to come unfortunately.  Unfortunately Robert is right, we are only delaying the inevitable.  Would an extension benefit me personally as a Real Estate Broker, yes, but sometimes you gotta vote for what you know is right not what is going to personally line your pockets.  Also the way I look at things prices correcting to properly align with the true salary and job situation the citizens of our country face is actually a good thing.  What created alot of the problems in the mortgage industry was the fact that it was too easy to pay inflated prices for real estate due to lax u/w guidelines.  Responsibility does not lie on any one particular groups shoulders, I think as a realtor trying to pin point blame on someone else is a copout, multiple parties share blame.  Remember people will always want to buy, the inventory will have to price itself according to what people can afford.  Will we have to work harder yes, but thats life in the global economy we are a part of now.

I have not turned down business due to the fact that the client is looking forward to a tax credit though, they need their own $$ for the DP and closing cost anyway so I'm not sure what the 2 posters above meant when they said they don't do biz w/ people looking to use the $8k tax credit to buy.