Co-eds on spring break can be convinced to take off their clothes with similar inducements. I bet the co-eds ultimately regret their impulsiveness less.
"You also have to remember that the U.S. federal government is hugely subsidizing the market. Interest rates are artificially low, and the U.S. Federal Reserve has bought more than $1 trillion worth of housing debt. Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) have been rescued by the government, and provided with more than $100 billion of taxpayer capital. And Ginnie Mae (the Government National Mortgage Association), directly a government agency, has provided almost $1 trillion of mortgages that require a 3% down payment.
And that’s not all.
The government is spending additional billions helping homeowners avoid foreclosure. First-time buyers are given a tax credit of $8,000 towards the down payment on their house – this credit currently runs out on December 1. So the current overall market bottom is propped up artificially. Even if the proposed tax-credit extension is approved, at some point, those props will be removed"
So this tax credit cost taxpayers about $45,000 per each additional home sold. Not very effective ... especially considering most of these are lower priced homes.
In some places, you could buy the whole house for folks for that amount.
However you try and interpret it, home sales have been on a tear recently.
If we can get some foreigners to start buying up cheap US property in bulk I think we'll be well on our way to the biggest property bubble of them all.
Rob Dawg, I wonder how many $150K houses were bought at a cost to the U.S. taxpayers of $45K? (this is one of the problems with a tax credit - many of these people would have bought anyway yet still receive the tax credit, and at the margin this tax credit is costing taxpayers $45K per house).
I see no reason to extend this credit.
Cinco-X, the other $37K ends up in the hands of people who would have bought anyway - so the tax credit was wasted on them.
most tax credits are very cost inefficient. This applies both to business and consumers. They make better political theater than they do economic policy. However, if that is all it was it might not matter but I actually do think that it makes things worse rather than better. A efficient market is an important albeit intangible value. Anything that interferes with an efficient market will ultimately cause greater pain. I find it interesting Bob Corker a "conservative" Republican is pushing the idea of a $15,000 tax credit- proving the point that both a "conservative Republican" and "liberal Democrat" is really an oxymoron.
Spoke with my RE agent friend yesterday. Business has been flat / dead / zippo / natha, hoping things change so she can pay bills. Leave it to NAR for pep piece.
Inside Yun's head
...
..
.
"And if we increase it to $15,000 and offer it to everyone, we can make the progam even less cost effective to the taxpayer, and put more money in our Realtor(TM) pockets. I must go share this plan with the devil, er I mean Goldman Sachs."
Anyone know what the $8K tax credit has done in markets like Detroit or Cleveland, where there are swaths of homes whose value are near (or even below) the value of the credit itself? Must encourage flipping at the lower margin, at least -- neighbors could trade deeds back and forth to get the tax break, and just stay put.
A few threads back, some folks were arguing the gov't (well, specifically the fed) couldn't get money into consumers hands, only the banks, who "aren't lending" to consumers.
The "lost" $37K goes into consumers hands.
In that sense, the credit is effective.
At 350,000 extra homes sold with a total comission of 6%, assuming an average house sales price of $150,000 that works out to $3,150,000,000 extra for the NAR members. Yes this assumes all homes sold are by realtors and all get 6%, but looking at these numbers, it makes perfect sense for the NAR to spend millions lobbying congress, because they get Billions in return (for their members, who kick up a piece).
Realtors really suck a lot off the economy, and make it less productive.
Eric (profile) wrote (in reply to...) on Tue, 9/1/2009 - 10:15 am
If new buyers collect $8k, and the total cost per home is $45k, where does the other $37k end up?
All new buyers get the credit, but some of them (80% or so) were going to buy anyway, so you just gave them free money.
On the other hand, since the Fed presumably own a huge pile of MBS', the slight increase in housing prices (or slightly less of a decrease) presumably preserves the value of the existing inventory, and that should be worth something, at least on paper. I doubt there's much hope for it in the long run, but I'm in the deflationist camp with Mish until it can be demonstrated otherwise.
DCRogers (profile) wrote on Tue, 9/1/2009 - 10:20 am
Anyone know what the $8K tax credit has done in markets like Detroit or Cleveland, where there are swaths of homes whose value are near (or even below) the value of the credit itself? Must encourage flipping at the lower margin, at least -- neighbors could trade deeds back and forth to get the tax break, and just stay put.
Edit: added $8K
I think the credit only applies to new buyer than intend to live in the home-
Manufacturing expands after 18-month slump
The Institute for Supply Management, a trade group of purchasing executives, says its manufacturing index rose to 52.9 in August, from 48.9 in July.
It's the first reading above 50, which indicates expansion, since January 2008. It's also the highest since June 2007.
squidward (profile) wrote on Tue, 9/1/2009 - 7:21 am
A few threads back, some folks were arguing the gov't (well, specifically the fed) couldn't get money into consumers hands, only the banks, who "aren't lending" to consumers.
The "lost" $37K goes into consumers hands.
In that sense, the credit is effective.
It ends up sloshing around in the home indebtedness industry causing even more harm through false liquidity and extend and pretend.
Much as I hate the concept of the 6% transaction fee, at least realtors are generally real people who will spend this additional housing windfall on local goods and services, pay staff, etc.
I'm honestly wondering if this credit will actually get extended. I'm finding a hard time believing that the NAR will be able to spin all this housing into OMGTHEHOUSINGWORLDISENDINGHELPUSPLZ in the next couple months. The credit did what it was supposed to do: stop sales from sinking to hell (at least on paper).
Then again, they might extend it like they did with C4C to give every last person an opportunity (nevermind the fact they had a freaking year to get in on it).
I'm just waiting for the day they realize they've turned FHA into subprime..
Interesting the last few weeks, equity markets have either been spiking and then quickly selling off or staying flat after the release of positive econ. news.
It would be much better to introduce real interest rate mortgages in the housing market. It would have no cost for taxpayers, increasing prices and consumption.
What would the pending and actual sales look like if you backed out the 350K for the year that NAR is attributing to the credit? Wouldn't that be the "real", un-goosed market?
It will be interesting to observe how many of those homes bought with the 8k credit this year will be underwater/delinquent two years from now. Probably no real way of tracking accurately, I would imagine, but there is always some imaginative wonk out there who knows how to do these things.
Note for those asking about the $8k in Rustlandia aka Detroit, Buffalo, et al. It is 10% of purchase price up to a maximum of $8k. $2k on a $20k house isn't as risk free as it may first appear.
I think NAR is underestimating the effect. Many if not most of those "normal" 1st time buyers would have continued to wait for better prices and less uncertainty in retaining equity if not for the push of the $8k.
The "reason" to extend it is to avoid the gap in demand, or postpone it.
Rob Dawg (homepage, profile) wrote on Tue, 9/1/2009 - 10:24 am
squidward (profile) wrote on Tue, 9/1/2009 - 7:21 am
A few threads back, some folks were arguing the gov't (well, specifically the fed) couldn't get money into consumers hands, only the banks, who "aren't lending" to consumers.
The "lost" $37K goes into consumers hands.
In that sense, the credit is effective.
It ends up sloshing around in the home indebtedness industry causing even more harm through false liquidity and extend and pretend.
Actually, if I can believe what I read here, 350,000 homes X $150,000 average selling price results in $52.5 billion in additional money, which is a not insignificant increase in the money supply. It's probably not as effective as C4C, but certainly better than the immediate effects of the financial bailout, thought the "intangibles" of "saving" the financial system are harder to quantify.
I find it interesting Bob Corker a "conservative" Republican is pushing the idea of a $15,000 tax credit- proving the point that both a "conservative Republican" and "liberal Democrat" is really an oxymoron.
Starting since at least LBJ every US president has been an economic and fiscal liberal.
I'm honestly wondering if this credit will actually get extended. I'm finding a hard time believing that the NAR will be able to spin all this housing Green Shoots into OMGTHEHOUSINGWORLDISENDINGHELPUSPLZ in the next couple months.
Their tack will probably read more like OMG, you're going to loose them mid-terms if you don't extend this credit and it's immediate effect on the economy NOW!!!!!
The goal was to clear the inventory. It is helping.
They needed income flowing to banks. Did that.
Many people have no down payment. Covered that.
The credit in effect lowered the cost to the buyer, more in line with incomes. Done.
Allot of the lower priced properties were cleared so I do think they will increase the credit to $15,000.00 and let anyone buy. That will start to clear the middle range properties.
We may not like it, but that is what they will do.
yes it is- FHA loan 3% down up until about $270,000 government gives you the money to make the down payment and then lends you the difference. One would have to be stupid not take advantage of this program. Houses go up in value you make out well if they decline sufficiently walk away.
On the other hand, since the Fed presumably own a huge pile of MBS', the slight increase in housing prices (or slightly less of a decrease) presumably preserves the value of the existing inventory, and that should be worth something, at least on paper.
This comment hits the crux of the issue. The credit gave buyers more buying power, and since the credit was available almost immediately (file a 1040X for 2008 and get the credit in ~60 days) even provided down payment which leveraged up to a higher "affordable" price.
It was the sellers who benefited most from this program, and (at least temporarily) the neighbors did so as well.
In economics 101, everyone learns about the concept of trade off. There are no free lunches and that eventually there is a cost associated with every action. I am amazed at the number of people that rush to get government handouts (rather it is a home credit or cash for clunkers) thinking it is free money. When the government spends money we don't have, the purchasing power of the dollar diminishes. Are people that desperate to get into a house that they are willing to sacrifice their own and everybody else future by taking a hand out? $45,000 a person just makes me sick to my stomach. Quite honestly, I don't care if pending home sales are going up from a month to month basis if in the long run we are going to pay for it in terms of inflation and a huge deficit. With rumors of a bank holiday, commercial real estate collapse, and a record deficit, now is not the time to bring out the champagne and start celebarting a month increase in pending home sales (which does not necessarily mean the actual sale will go thru).
Cr how do you know how many homes would have
been bought w/o the credit? The market was in free fall
so just comparing sales to previous quarters
may not tell the whole story - a better comparison
would be to look at the change in number of first time
buyers...
First!? Where is everyone?
wonder how many are "pending" because of the TBW fiasco.
So much for the downturn in the markets. On news like this, we're clearly done with the recession.
Co-eds on spring break can be convinced to take off their clothes with similar inducements. I bet the co-eds ultimately regret their impulsiveness less.
"You also have to remember that the U.S. federal government is hugely subsidizing the market. Interest rates are artificially low, and the U.S. Federal Reserve has bought more than $1 trillion worth of housing debt. Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) have been rescued by the government, and provided with more than $100 billion of taxpayer capital. And Ginnie Mae (the Government National Mortgage Association), directly a government agency, has provided almost $1 trillion of mortgages that require a 3% down payment.
And that’s not all.
The government is spending additional billions helping homeowners avoid foreclosure. First-time buyers are given a tax credit of $8,000 towards the down payment on their house – this credit currently runs out on December 1. So the current overall market bottom is propped up artificially. Even if the proposed tax-credit extension is approved, at some point, those props will be removed"
The U.S. Housing Market's False Dawn
Wow with that kind of payback the government would be crazy to extended the tax credit. So I expect they will extend it.
So this tax credit cost taxpayers about $45,000 per each additional home sold. Not very effective ... especially considering most of these are lower priced homes.
In some places, you could buy the whole house for folks for that amount.
If new buyers collect $8k, and the total cost per home is $45k, where does the other $37k end up?
with everyone else who would have bought even without the tax credit. basically, they received a windfall.
However you try and interpret it, home sales have been on a tear recently.
If we can get some foreigners to start buying up cheap US property in bulk I think we'll be well on our way to the biggest property bubble of them all.
"In some places, you could buy the whole house for folks for that amount. "
Some places you can buy two houses for that amount.
If new buyers collect $8k, and the total cost per home is $45k, where does the other $37k end up?
All new buyers get the credit, but some of them (80% or so) were going to buy anyway, so you just gave them free money.
Rob Dawg, I wonder how many $150K houses were bought at a cost to the U.S. taxpayers of $45K? (this is one of the problems with a tax credit - many of these people would have bought anyway yet still receive the tax credit, and at the margin this tax credit is costing taxpayers $45K per house).
I see no reason to extend this credit.
Cinco-X, the other $37K ends up in the hands of people who would have bought anyway - so the tax credit was wasted on them.
best wishes
most tax credits are very cost inefficient. This applies both to business and consumers. They make better political theater than they do economic policy. However, if that is all it was it might not matter but I actually do think that it makes things worse rather than better. A efficient market is an important albeit intangible value. Anything that interferes with an efficient market will ultimately cause greater pain. I find it interesting Bob Corker a "conservative" Republican is pushing the idea of a $15,000 tax credit- proving the point that both a "conservative Republican" and "liberal Democrat" is really an oxymoron.
Spoke with my RE agent friend yesterday. Business has been flat / dead / zippo / natha, hoping things change so she can pay bills. Leave it to NAR for pep piece.
Inside Yun's head
...
..
.
"And if we increase it to $15,000 and offer it to everyone, we can make the progam even less cost effective to the taxpayer, and put more money in our Realtor(TM) pockets. I must go share this plan with the devil, er I mean Goldman Sachs."
Anyone know what the $8K tax credit has done in markets like Detroit or Cleveland, where there are swaths of homes whose value are near (or even below) the value of the credit itself? Must encourage flipping at the lower margin, at least -- neighbors could trade deeds back and forth to get the tax break, and just stay put.
Edit: added $8K
IIRC, tax credit is 10% of transaction maxed out at $8K...
A few threads back, some folks were arguing the gov't (well, specifically the fed) couldn't get money into consumers hands, only the banks, who "aren't lending" to consumers.
The "lost" $37K goes into consumers hands.
In that sense, the credit is effective.
At 350,000 extra homes sold with a total comission of 6%, assuming an average house sales price of $150,000 that works out to $3,150,000,000 extra for the NAR members. Yes this assumes all homes sold are by realtors and all get 6%, but looking at these numbers, it makes perfect sense for the NAR to spend millions lobbying congress, because they get Billions in return (for their members, who kick up a piece).
Realtors really suck a lot off the economy, and make it less productive.
Eric (profile) wrote (in reply to...) on Tue, 9/1/2009 - 10:15 am
If new buyers collect $8k, and the total cost per home is $45k, where does the other $37k end up?
All new buyers get the credit, but some of them (80% or so) were going to buy anyway, so you just gave them free money.
On the other hand, since the Fed presumably own a huge pile of MBS', the slight increase in housing prices (or slightly less of a decrease) presumably preserves the value of the existing inventory, and that should be worth something, at least on paper. I doubt there's much hope for it in the long run, but I'm in the deflationist camp with Mish until it can be demonstrated otherwise.
DCRogers (profile) wrote on Tue, 9/1/2009 - 10:20 am
Anyone know what the $8K tax credit has done in markets like Detroit or Cleveland, where there are swaths of homes whose value are near (or even below) the value of the credit itself? Must encourage flipping at the lower margin, at least -- neighbors could trade deeds back and forth to get the tax break, and just stay put.
Edit: added $8K
I think the credit only applies to new buyer than intend to live in the home-
Manufacturing expands after 18-month slump
The Institute for Supply Management, a trade group of purchasing executives, says its manufacturing index rose to 52.9 in August, from 48.9 in July.
It's the first reading above 50, which indicates expansion, since January 2008. It's also the highest since June 2007.
squidward (profile) wrote on Tue, 9/1/2009 - 7:21 am
A few threads back, some folks were arguing the gov't (well, specifically the fed) couldn't get money into consumers hands, only the banks, who "aren't lending" to consumers.
The "lost" $37K goes into consumers hands.
In that sense, the credit is effective.
It ends up sloshing around in the home indebtedness industry causing even more harm through false liquidity and extend and pretend.
Much as I hate the concept of the 6% transaction fee, at least realtors are generally real people who will spend this additional housing windfall on local goods and services, pay staff, etc.
Who took the steam out of the markets???? With the good news flowing from the NAR and the ISM report, I was sure we would break 10k on the DOW today!
I'm honestly wondering if this credit will actually get extended. I'm finding a hard time believing that the NAR will be able to spin all this housing
into OMGTHEHOUSINGWORLDISENDINGHELPUSPLZ in the next couple months. The credit did what it was supposed to do: stop sales from sinking to hell (at least on paper).
Then again, they might extend it like they did with C4C to give every last person an opportunity (nevermind the fact they had a freaking year to get in on it).
I'm just waiting for the day they realize they've turned FHA into subprime..
Interesting the last few weeks, equity markets have either been spiking and then quickly selling off or staying flat after the release of positive econ. news.
It would be much better to introduce real interest rate mortgages in the housing market. It would have no cost for taxpayers, increasing prices and consumption.
Real Rate Mortgages - Benefits for US economy and markets
It would also help to stabilize markets in the long term
New financial products for mortgage loan markets
What would the pending and actual sales look like if you backed out the 350K for the year that NAR is attributing to the credit? Wouldn't that be the "real", un-goosed market?
money.cnn.com has a poll up asking readers whether the $8,000 first homebuyer tax credit should be extended.
And "Yes" is winning 60% to 40%
Poll is halfway down the page, in the middle, under the "Most Popular" news listings.
Business, financial, personal finance news - CNNMoney.com
It will be interesting to observe how many of those homes bought with the 8k credit this year will be underwater/delinquent two years from now. Probably no real way of tracking accurately, I would imagine, but there is always some imaginative wonk out there who knows how to do these things.
Note for those asking about the $8k in Rustlandia aka Detroit, Buffalo, et al. It is 10% of purchase price up to a maximum of $8k. $2k on a $20k house isn't as risk free as it may first appear.
I think NAR is underestimating the effect. Many if not most of those "normal" 1st time buyers would have continued to wait for better prices and less uncertainty in retaining equity if not for the push of the $8k.
The "reason" to extend it is to avoid the gap in demand, or postpone it.
Rob Dawg (homepage, profile) wrote on Tue, 9/1/2009 - 10:24 am
squidward (profile) wrote on Tue, 9/1/2009 - 7:21 am
A few threads back, some folks were arguing the gov't (well, specifically the fed) couldn't get money into consumers hands, only the banks, who "aren't lending" to consumers.
The "lost" $37K goes into consumers hands.
In that sense, the credit is effective.
It ends up sloshing around in the home indebtedness industry causing even more harm through false liquidity and extend and pretend.
Actually, if I can believe what I read here, 350,000 homes X $150,000 average selling price results in $52.5 billion in additional money, which is a not insignificant increase in the money supply. It's probably not as effective as C4C, but certainly better than the immediate effects of the financial bailout, thought the "intangibles" of "saving" the financial system are harder to quantify.
I find it interesting Bob Corker a "conservative" Republican is pushing the idea of a $15,000 tax credit- proving the point that both a "conservative Republican" and "liberal Democrat" is really an oxymoron.
Starting since at least LBJ every US president has been an economic and fiscal liberal.
Cinco-X - re Fed and huge pile of MBSs: maybe, depends on how you count it with support to Agencies etc.
Here's some pretty stuff from Cleveland Fed. Hit "Detailed View" at left sidebar for the better geological striation.
Credit Easing Policy Tools ::
Federal Reserve Bank of Cleveland
C
dafox (profile) wrote on Tue, 9/1/2009 - 10:25 am
I'm honestly wondering if this credit will actually get extended. I'm finding a hard time believing that the NAR will be able to spin all this housing Green Shoots into OMGTHEHOUSINGWORLDISENDINGHELPUSPLZ in the next couple months.
Their tack will probably read more like OMG, you're going to loose them mid-terms if you don't extend this credit and it's immediate effect on the economy NOW!!!!!
The Orwellian terms "tax credit" and "tax loophole" should be locked into the Thunderdome and forced to fight it out.
In that case the $15K credit would seem a lock, no?
energyecon (homepage, profile) wrote (in reply to...) on Tue, 9/1/2009 - 10:36 am
In that case the $15K credit would seem a lock, no?
Exactly! What the hell does Corker think he's doing?
The goal was to clear the inventory. It is helping.
They needed income flowing to banks. Did that.
Many people have no down payment. Covered that.
The credit in effect lowered the cost to the buyer, more in line with incomes. Done.
Allot of the lower priced properties were cleared so I do think they will increase the credit to $15,000.00 and let anyone buy. That will start to clear the middle range properties.
We may not like it, but that is what they will do.
yes it is- FHA loan 3% down up until about $270,000 government gives you the money to make the down payment and then lends you the difference. One would have to be stupid not take advantage of this program. Houses go up in value you make out well if they decline sufficiently walk away.
Late, but for the record.
On the other hand, since the Fed presumably own a huge pile of MBS', the slight increase in housing prices (or slightly less of a decrease) presumably preserves the value of the existing inventory, and that should be worth something, at least on paper.
This comment hits the crux of the issue. The credit gave buyers more buying power, and since the credit was available almost immediately (file a 1040X for 2008 and get the credit in ~60 days) even provided down payment which leveraged up to a higher "affordable" price.
It was the sellers who benefited most from this program, and (at least temporarily) the neighbors did so as well.
In economics 101, everyone learns about the concept of trade off. There are no free lunches and that eventually there is a cost associated with every action. I am amazed at the number of people that rush to get government handouts (rather it is a home credit or cash for clunkers) thinking it is free money. When the government spends money we don't have, the purchasing power of the dollar diminishes. Are people that desperate to get into a house that they are willing to sacrifice their own and everybody else future by taking a hand out? $45,000 a person just makes me sick to my stomach. Quite honestly, I don't care if pending home sales are going up from a month to month basis if in the long run we are going to pay for it in terms of inflation and a huge deficit. With rumors of a bank holiday, commercial real estate collapse, and a record deficit, now is not the time to bring out the champagne and start celebarting a month increase in pending home sales (which does not necessarily mean the actual sale will go thru).
Cr how do you know how many homes would have
been bought w/o the credit? The market was in free fall
so just comparing sales to previous quarters
may not tell the whole story - a better comparison
would be to look at the change in number of first time
buyers...