What does an administration do when their gimmicky, taxpayer-subsidized economic interventions — they’re too ad hoc to be called policies at this point — run out of steam and show no sign of solving the underlying problems of the economy? When they have no Plan B, they offer a repeat of Plan A, and in this case, a re-repeat. HUD Secretary Shaun Donovan told CNN yesterday that the White House may back a third homebuyer tax credit in response to the lack of demand in the housing markets:
Shaun Donovan, Secretary of Housing and Urban Development, said Sunday that the housing market’s July woes were “worse than expected” and that the administration may support a new homebuyer tax credit.
In an interview on CNN, Donovan said the administration is “concerned” about the path of the industry. He defended the Obama administration’s record on supporting the housing market, amid new signs that the market is struggling alongside the broader economy.
Donovan did not rule out a further homebuyer tax credit to support the market. Congress passed a homebuyer tax credit to support first-time buyers. The credit has now expired.
“I think it’s too early to say after one month of numbers whether the tax credit will be revived or not,” Donovan said.
Too early? It’s too late to get anyone to believe in it, especially after this summer’s crash. The dive in sales and demand make this a buyer’s market, at least for homes with rational pricing. Another tax credit is unlikely to result in much demand anyway; housing sales are below last year’s figures for a reason.
The problems in the market have nothing to do with the expiration of tax credits, which only moved up purchases by already-qualified buyers that would have come in future quarters anyway. The markets have two problems: irrational pricing, a leftover from the bubble collapse, and unemployment. The housing bubble collapsed in 2008, but thanks to gimmicky interventions like the homebuyer tax credit, values haven’t yet reached their rational level. Further interventions will only further delay the inevitable.
What will solve that problem will be the entry of more buyers into the market — and that’s not going to happen until we start creating a lot more jobs. Even if prices hit a rational level, owners still need qualified borrowers to buy them. Until we start creating jobs, we won’t generate new and qualified buyers — and people who are already fearful of their existing jobs aren’t likely to jump into real estate investments of any kind, either.
None of these issues will get addressed by a homebuyer tax credit. It’s just another of the Cash for Clunkers projects from an administration that clearly has gotten in over its head on economics, and just as clearly has no idea what to do after their first plan failed.