From the REO Insider blog (a site that, due to our never-ending short sale offer, has been a source of useful information about the burgeoning market for properties with “special conditions” – next Sunday will be four months since our offer was made) comes this tally of the cost of the various homebuyer tax credit and loan programs offered by the government that have helped to prop up the housing market over the last year or so.
The total bill for the homebuyer tax credit so far, as reported by the Internal Revenue Service, stands at $23.5 billion.
About $16.2 billion of that is for the $8,000 (Recovery Act) and $6,500 (Assistance Act) grants shelled out to first and second-time homebuyers, respectively. The other $7.3 billion is for interest-free loans through the Housing Act provision. Americans who qualified for these loans will begin repaying them next tax season, which starts in January.
The numbers are based on IRS filings through July 3.
The Government Accountability Office estimates that with all of the first-time homebuyer tax credits, the total revenue loss to the federal government will be about $22 billion.
When they write the history books for the current period, they’ll probably look back at things like Cash-4-Clunkers and the homebuyer tax credit as huge mistakes by the government that extended the downturn for years, much as historians now look back at the policy mistakes made during the Great Depression.
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I would not have made, and did not endorse, either the car or house credits.
Just the same, I can work out a plausible defense for them. That is, if you believe “animal spirits” can drive markets, you should probably accept that they can over-drive markets. The booms are excess, but so are the crashes. Normalcy comes with milder emotions.
With that background, a “fix” that didn’t “work” might have still dampened the mood swing. It would not have made a bottom, but it might have prevented a worse one.
We’ll never know of course, the counter-factual is not available.
john,
I can buy the “nice try” argument somewhat for Cash for Clunkers but not for the homebuyer tax credit, where sales of existing homes – which generate almost nothing in economic activity – outnumber new home sales by a ratio of 5 to 1. And arguably two-thirds of Cash for Clunkers and the occasional new home sale merely cannibalized future demand.
If the feds wanted to go all Keynesian to jump start the economy, MarketWatch economist Irwin Kellner had a simpler and better idea: Just send everybody a $3,000 debit card restricted to the purchase of goods and services with a short expiration date. That would have cost about the same at the TBTF bank bailout, been fairer and done a whole lot more than banker bonuses to rev the economy.
Cheers,
Waume
Cheers,
Wayne
BTW, $24 billion is kind of a rounding error on the budget as a whole.
The market “distortions” caused by this $24 billion is an order of magnitude (or two) higher. The $24 billion probably kept overall real estat values from falling by hundreds of billions of dollars over the last year. Now we have some catching up to do….
The future narrative will go something like this:
“Federal Reserve purchases of mortgage securities and several government incentive programs for home buyers kept real estate prices from reaching a bottom until 2015. The expiration of each round of stimulus led to another move down for home prices and another financial panic.”
The mood seems to be swinging the other way. Trial balloons or not, more people are talking about letting the market find its bottom.
Holding up inflated home prices is a clear waste unless there is any hope/possibility (i think Nil) or sense (again, i think Nil) to pull them up to a point where home equity consumer credit can revive again – but that wld amount to building another house of cards. So better to invest public money and energy into creating infrastructure and future technologies. Just holding the prices artificially neither gives volumes to RE business nor induces homeowners to spend more. They’ve already done any spending cuts influenced by lower asset valuations, and this pales against the consumption drop due uncertainty around keeping one’s job, having lost it already, and the vanished HELOC.
But its not without merit that on its own the market often overreacts and overcorrects, so the RE market correcting from a prepostrous bubble could’ve overcorrected itself to annihilation. I feel the Gov has done a good tightrope walk so far, preventing a cardiac arrest from killing the body. But the way fwd is return to healthy levels of activity and nutrients, not dope-support.
“When they write the history books for the current period, they’ll probably look back at things like Cash-4-Clunkers and the homebuyer tax credit as huge mistakes by the government that extended the downturn for years, much as historians now look back at the policy mistakes made during the Great Depression.”
Amen.