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By J. Patrick Coolican (contact) 
Tuesday, Sept. 22, 2009 | 2 a.m.
Reader poll
Sun Archives
- Editorial: Lending a helping hand (9-1-2009)
- Homebuilders seek a little help from their government (8-29-2009)
- Reid: Congress will extend $8,000 home tax credit (8-5-2009)
- Realtors quietly lobbying to extend homebuyer tax credit (7-24-2009)
Sun Topics
No doubt, a big tax break for first-time homebuyers is good politics.
The $8,000 tax credit, enacted this year when Congress passed the $800 billion stimulus program, helps families looking to buy a house for the first time, as well as real estate agents and developers, who are ailing in the face of the worst housing market since the Depression.
Nevada more than just about any other state could use help for its beleaguered construction industry; unemployment in construction in Clark County has climbed into the high 20s and could reach 50 percent this year, according to labor union officials.
So it’s not surprising that Nevada’s congressional delegation has signed on to a plan to extend the credit and even make it more generous.
“It’s working,” says Rep. Dina Titus, the 3rd District Democrat. “You can see the positive impact of it. It really is stimulating the economy, helping Realtors and developers and homebuilders and individual homebuyers.”
Although the politics are a surefire winner, especially here in Nevada, some economists across the political spectrum question whether the tax credit is good policy.
“It’s terrible policy,” says Mark Calabria of the libertarian Cato Institute.
“It’s awful policy,” says Andrew Jakabovics, associate director for housing and economics at the liberal Center for American Progress. “It’s incredibly expensive. It’s not well targeted.”
Home sales have risen dramatically in the past year, but most economists don’t attribute the increase to the tax credit. August single-family-home sales in Southern Nevada, for instance, hit 3,229, up more than 25 percent from a year earlier.
But economists attribute most of the rising sales to the plunge in prices, not the tax credit. The median sale price of single-family homes was off more than 35 percent from a year earlier.
“A heck of a lot of people would have bought the house anyway,” says Ted Gayer, an economist at the Brookings Institution.
According to an estimate by the National Association of Realtors, of the 2 million new homebuyers since the credit was instituted, 350,000 say they would not have bought a house without the tax break.
“We paid $8,000 to at least 1.5 million people to do something they were going to do anyway,” Jakabovics says.
The tax break, due to expire at the end of November, is on track to cost $15 billion, twice what Congress had planned. In other words, it will cost $43,000 for every new homebuyer who would not have bought a house without the tax break.
Gayer also questions whether moving people from renting to owning is really all that useful:
“Sure, the people in my rental house buy the empty house next door. Then the house next door is no longer vacant, but my rental property is.”
Economists derisively call this rush to get people to buy homes “reinflating the bubble.”
Government policy for decades has favored owning over renting because policymakers always believed homeownership created stable neighborhoods and offered a safe investment for the middle class.
Plus, as Calabria notes, “we give homeowners massive subsidies because they vote more often.” For Calabria, the policy amounts to taking money from the pockets of renters and stuffing it into the pockets of owners, and to robbing young Americans because it is adding to the national debt, which will have to be repaid eventually.
The housing bust has called the long-standing policy of favoring homeownership into question, as millions of Americans owe more on their homes than they are worth, leaving owners trapped and unable to move to another city to find a better job.
Economists say even with brisk sales of late, encouraged in part by the tax credit, the real problem — excess supply of housing stock — remains.
Economists say the glut of housing can be mitigated only by creating more households, and, thus, demand for housing.
A survey by respected pollster Peter Hart for the AFL-CIO found that one in three workers younger than 35 lives with his parents. With young workers living with Mom, apartment vacancies hit a 22-year high nationally during the second quarter and climbed to 9.5 percent in the Las Vegas Valley, according to Applied Analysis, an economics research firm.
The tax credit is one, albeit very expensive, way to create more households, but rental vouchers to get people out of their parents’ basements should also be considered, economists say.
Economists also question whether more money could be used to lower monthly mortgage payments.
Finally, they say the Federal Reserve should keep interest rates low, which would guarantee affordability for the life of a loan.
Walter Molony, a spokesman for the National Association of Realtors, counters that without the credit, sales would have been 6 percent lower, which would have pushed prices down further and encouraged more people to walk away from their homes.
With so many new foreclosures every month, buyers are needed to soak up the new inventory, he says.
Finally, Molony says, with every home purchase, there’s an additional $63,000 pumped into the economy, as buyers tend to make purchases after the sale, on big-ticket items such as carpet and appliances.
Andres Carbacho-Burgos, an economist for Moody’s Economy.com, said that the tax credit might have had some effect in boosting demand.
Economy.com expects home prices in Nevada to decline for three more quarters.
Indeed, some economists think the situation is so dire that the shock therapy of the tax credit, even if expensive and inefficient, is worth it. Elliott Parker, an economist at the University of Nevada, Reno, calls the tax credit a “blunt instrument” but said anything that encourages confidence and convinces potential buyers that we’ve hit bottom can be defended as sound policy.
Housing and construction have historically led the U.S. out of recession in every single one since 1960, and some economists worry that until that sector returns, the recovery will be tepid at best.
Whatever the arguments, an extension of the tax credit is gathering momentum. The entire Nevada delegation supports it, for instance.
And as with the wildly successful — and expensive — “cash-for-clunkers” program, the visible increase in home sales will likely encourage Congress to extend the break, especially as unemployment and foreclosures keep rising.
As Sen. John Ensign said last week on the Senate floor in support of the measure, “Clark County, where Las Vegas is, has over a 13 percent unemployment rate. I don’t think folks living there think the recession is over.”
In a time when home values are in the tank due to excess inventory only our government would think giving tax breaks to buyers of new homes is a good idea. Another gem from harry Reid and the Tides Foundation.
Why start listening to economists now? Cash for Clunkers was just as stupid, yet we all get regaled with the stories of what a massive success it was. In the end, the Democrats are taking my money to subsidize my neighbor's car and they are taking my money to subsidize my neighbor's house.
Neiman1, I'm not sure where you read that this credit was offered to buyers of "new homes." Story doesn't say that. Story reports that the credit was offered to home buyers purchasing homes for the first time.
Why not give everybody in the USA, $25,000 each??????
We would party like there would be no tomorrow because with all these $2 trillion deficits and trillion dollar deficits as far as the eye can see there is no tomorrow.
Feel very sorry for the generation that is going to have to live through the period when the Chinese and others start demanding very high interest rates to buy bonds and they start to dump the US dollars.
There will be super hyper inflation and the government on top of that will radically increase taxes and radically cut all programs. Unemployment will be over 20%. People will be begging for food in the streets.
It will be a miserable time.
But heck, we will probably not have to deal with it for we will long gone dead.
Let's party!!!!!
The heck to Cash-for-Clunkers....Give me my $25,000!!!!!!
What a sucker I am. I purchased a home I could afford, purchased a vehicle that I could afford. Were is the break for those who play by the rules and who don't get the government handouts. As a taxpayer all I get are the tax bills.
Stop these taxpayer handouts and make individuals save and prepare for homeownership.
Give me my $25,000!!!!!!
ANd let US do what we want with it, ie invest it, hide it in our mattresses, catch up on bills, spend it - whatever. I'm sure giving every adult over the age of 30(don't give it to the young 20-somethings - they'll just buy better t hings so they can text message with and the Beatles version of guitar hero), maybe even over 40, it would still come out less than what the gov't gave away to the banks, GM, Chrysler. Let US decide what to do with it. BAIL US OUT for a change.
I am SO sick and tired of the righties whining about debt. Where were they when Bush growing the national debt with tax cuts for the super-wealthy and two major wars (Afghanistan & Iraq)? He threw this economy into recession, so now we need to get it out with spending.
This program has been a great incentive to get people like me to buy a home. I am a first-time homeowner, and the $8,000 rebate I am slated to receive next year will help me pay for planned improvements. Heck, I may even have some money left over for a vacation next year!
This program is pumping money back into our economy and doing so the right way by giving that money to consumers (NOT the banks, who have misused the TARP bailout funds), so why mess with a good thing?
As someone who got the credit, let me tell you what I did with it ---
I spent it.
I poured it back into the local economy. I hired contractors. I made lots of trips to the hardware store. I went out to dinner a few times. Sure, I wanted to save it, but the house needed work, and work it got.
Isn't that exactly what the economy needed?
I would have bought anyway, but the $8000 was in the back of my mind. I don't need it, but I won't complain. With a new-to-me house, I'll be putting most all of it back in the local economy eventually if not already. Plumbers, electricians, Sherwin Williams, home improvement stores (not Lowes, though, crappy service and ridiculous prices in my opinion).
Not every policy ever devised was correct. let's not panic about the pittance we're handing out to some American citizens, while Iraq and Afghanistan burn through billions a week. YOUR tax dollars went back to Las Vegas after a short trip through me. Do you want Las Vegas to have it, or some NY banker?
Want to talk about screwy tax policy, let's talk about capital gains.
As to those "I played by the rules" folks, so did I. I bought a house I could afford with 20% down. I waited out the bubble. Now I'm getting a little back. Relax.
bringtherain, the credit didn't make you buy the house, the low prices did. the credit is just icing on the cake. which is the point of many of the comments and the article. waste of money
atdleft is still looking for "Bush." he needs someone to blame who he thinks is a crook. Blame him for this and blame him for that, but don't blame him for keeping us safe.
atdleft states that spending more money will cure all of our woes. Hope it works for him because it didn't work for my wife.
Other then that, atdleft is on track. Too bad so many others are on the attack...
The credit is a waste of money. The Government has done enough bailing out. Time to step back, take the training wheels off and let it go on its own.
While you are at it lets remove the mortgage interest deduction and make selling a home a capital gain intead of a one-time exclusion of $250K.
As a current renter, the 8K credit would offset all of the tax benefits that the existing homeowner has enjoyed for years so Congress either extend the credit or remove all tax incentives including the mortgage deduction from the tax laws.
VC
Are you a homeowner? If so lets make you pay your fair share and remove the interest deduction.
I agree with mar100. I played by the rules and end up with nothing. When I approached the lender who has my mortgage to get a better interest rate. All they did was give me a hard time and closing costs of over $3500. Why so much when all I am asking for is a better interest rate and they already have my mortgage. I don't owe more then my house is worth and I am not looking to do anything other then refinance the present loan. We keep getting the shaft because we followed the rules.
Bush kept us safe???? LOL 9/11 on his watch. Bush did not keep us safe and lost 2 wars!
Oh I agree no more credits. Enough wealth redistribution already.
Mr. Gorman, by first time home owner they mean someone who hasn't purchased a home in the last few years...so technically they aren't actually first time home buyers.
If you thought housing's been bad the past couple years, wait till you see what happens when the .gov removes the first time buyer incentives. Home sales will plummet. Gotta love the unintended consequences of government intervention in capital markets!
Now c'mon everybody lets re-inflate that bubble!
I love this part -> "Finally, Molony says, with every home purchase, there's an additional $63,000 pumped into the economy, as buyers tend to make purchases after the sale, on big-ticket items such as carpet and appliances."
You think they pay cash for those big ticket items? Na, whip out the credit card lets get in even deeper debt!
Next they'll be saying "You aren't a true patriot unless you in debt!"
I never really thought that they should have given out $8,000 in free money to first time homebuyers. I purchased my home in October of last year and received a tax credit of $7,500, which I used to fix up the foreclosure, but I have to pay it back over the course of 15 years. Everyone should have to do that.
Takeing my tax money and redistriuting it to someone else is wrong
Taxes should be for public service only - redistributing is not a public service!
However, TBV, we could do wealth redistribution far more efficiently than we do today.
I.e. just give the people the money and let them spend it how they see fit.
Of course it takes the social engineering out of the process and that means politicians wouldn't have much to do.
TBVEGAS
Did you take the mortgage interest deduction or any other itemize deductions on your income taxes? If so then you are getting redistribution of wealth!
Neiman and his selective memory, this Gem was initally created by the Bush administration, Obama raised the limit from $7,500 to $8,000. The Bush credit of $7,500 was basically an interest free loan that had to be repaid over 15 years, under Obama the amount does not have to be repaid. Under the Bush the Gem (as you call it) there were many loopholes to get out from repayment. Neiman you head must be stuff with straw because if it was a vacuum it might get filled with some facts.
Good old Patrick who selectively omits facts. The precise wording is the credit is available for people who have not owned a home with the last three year period. This applies to BOTH people who have never owned a home and also to people who have not owned one in the last three years.
You can't get even simple facts right and you want us to trust you and your organization with the budget of Nevada??
A "few" is not equal to 3 years
Government handouts always end up in failure.
I agreee with mar100. I bought a house I could afford, and drive inexpensive vehicles. My neighbor laughed in my face 3 years ago when he told me he was getting out and moving to a way more expensive neighborhood. I saw him a few months back. he stopped by in the old van he was living in since he lost (walked away) from his overpriced house. He wanted to "borrow" some gas money. I didn't give him a dime. These losers who walk away from loans without paying should be on a "NO LOAN" list until every penny is paid back. Where's my tax credit for paying my bills and living within my means? We do without if we can't afford it.
It's about time I get something back for all the taxes I have paid the US government. The first time homebuyer tax credit of $8,000 was well appreciated. I've got my share by purchasing a condo this year. Not only was I glad I took advantage of this offer it also helped the local economy in my homestate. I'm in the process of fixing up my condo using not only the tax credit but my own money as well. For those who do not take advantage of the tax credit for first time homebuyers, it's your lost not mine, I'm only getting part of the tax money I continually pay the US government. Money well spent in the United States and not overseas.
It's about time I get something back for all the taxes I have paid the US government. The first time homebuyer credit of $8,000 was well appreciated. I've got my share by purchasing a condo this year. I was glad I took advantage of this tax credit, it helped the local economy in my home state. I'm in the process of fixing up my condo using the $8,000 tax credit I got. For those who do not take advantage of the tax credit, it's your loss not mine, I am only getting part of the tax money I continually pay the US government. Money well spent in the United States and not overseas.
righties only interested in rich people, been trained like a puppy to love their masters and bite all others. sick, but that's what has happened.
No doubt this tax credit does help some folks, but not to the extent of what you expected.
Most sales in the last few months had been investors buying them as rental properties. I personally know of someone (foreigner) who bought 4 properties with cash and make them as rental properties. As a matter of fact, his plan is to purchase 6 more. the reason is that he's getting a good return on his investment assuming no appreciation on his property values.
So, the $64K question is how will this impact the overall inventories? yes, this will reduce the supply but does it actually reduces it to the point new constructions are needed? probably not because there aren't that many people living in LV to absord all these inventories. I've already heard the rental price has dropped quite a bit due to competition.
I'm confused. I got a first time homebuyer tax credit of $8,000.00 when I bought my first house in 1997 in Nevada.
@ atdleft,
Actually this $8K tax credit is a backdoor bailout to the banks as it artificially keeps home prices high. This enables the banks can off load their foreclosures at above market prices compliments of the US taxpayer.
As the economists clearly stated this is a horrible policy.
@ ghostcommander,
What needs to be done is for government to do nothing and allow free markets to work.
Home prices are still to high based on price-to-income and market rents. Foreclosures and short sales are necessary to clear the market.
Using taxpayer money to prop up the housing market only delays the market adjustment, its a complete waste of money.