The popular definition of insanity is doing the same thing over and over again and expecting a different result. After the Cash for Clunkers program failed to do anything more than steal sales from the future and two successive homebuyer tax credits had the same effect while burning up billions of taxpayer dollars, what would the truly insane suggest as a response? Oh, let’s not always see the same hands (via King Banaian):
Cristian de Ritis, a director at Moody’s Economy.com, told SNL that the consensus estimate was for a pace of 420,000, with Moody’s Economy.com projecting a rate of 425,000. He expected the tax credit to pique buyer interest in a manner that would carry over for months following the credit’s expiration.
“In effect, I think what we’ve done is pull ahead a lot of sales,” de Ritis said. “And we’re just realizing now that we’ve pulled ahead many more of the sales than we had anticipated.”
Still, the number is so bad that it makes a decent case for an extension and retuning of the tax credit, de Ritis said.
Michael Widner, an analyst with Stifel Nicolaus & Co., told SNL that the tax credit did nothing to help housing fundamentals and only pulled demand forward. In a June 22 report, Widner predicted the new-home sales rate would hit 295,000 in May, just 5,000 units off the actual pace.
“The tax credits just add noise. The tax credits don’t create more households, they don’t create more people, they don’t create more families,” Widner said. “They just give people incentives to buy houses sooner rather than later. And at the end of the day, there’s no substitute [for fundamentals]. It’s a long, slow trudge through 10 years of overbuilding.” …
Even though he is not in favor of another tax credit, Widner said May’s exceptionally low number means plenty of industry insiders will push for one.
Of course they will. Democrats in Congress, who are somehow married to the concept that government intervention creates growth despite all of the evidence of the last two years to the contrary, will almost certainly demand yet another homebuyer tax credit to steal future sales that will replace the present-day sales they stole in the past. All they need are several billion dollars in taxpayer monies, and their dream can come true.
Don’t believe me? This is the same group of people who offered a second tax credit after seeing the results of the first, as this Bloomberg chart shows for both:
There is a more Machiavellian motive at play here, too. If Congress pushes a tax credit now that expires at the end of the year, housing sales will drop again just as the new Congress comes into session. Assuming Democrats lose control of the House, they can then blame the next crash on the GOP. The only problem with that scenario is that economic growth may not create any more qualified homebuyers, who appear to have bought mostly in November and the rest this spring, where the the sales curve failed to meet the previous spike. There may not be enough left in the tank in this economy to spur any more sales at all.
We don’t need another homebuyer tax credit. We need to get capital back into the market and regenerating growth in order to get people employed and in position to buy houses. That is the epicenter of the housing markets’ woes.