We here could have told them so, but would they listen?
"The housing tax credit was a clear and unequivocal failure. Not only did most of the benefit go to people who were going to buy anyway, but the credit didn't reduce the overall supply (the total supply includes both homes and rental units). The credit just incentivized some people to move - and pulled some sales forward - and to the extent the credit went to new home sales, it actually was counterproductive by increasing the excess supply. This is a textbook example of bad policy".Here's the link to the full WSJ article. Cara points out in today's bits bucket how D.C. is different. (Apologies to Ben Jones for our specialness).
6.3 MOI, amongst the lowest
0.6% rise in inventory, miniscule
6.2% increase in price, amongst the highest handful
6.8% jobless rate NONE better
9.8% overdue payment rate, bottom third and enviable compared to many.
21 comments:
Yup, the tax credit was a total waste of money. And around here it made 2009 and 2010 prices higher than they would otherwise have been. That's about the only thing it accomplished. In markets that didn't need help it helped mortgage owners retain a little more equity in their collateral. Everywhere else it put off the inevitable a tad longer.
(I'd bet 90% of the price support came from the ridiculously low mortgage rates anyway).
A local Realtor's neighborhood newsletter agrees:
"...Our spring season didn't remain strong for long...showing traffic remains good; however the demand is very selective. Buyers are passing on all but the most choice properties and they're looking for value. Momentum loss is being experienced in many RE marketplaces due in part to lack of economic confidence despite amazingly low mortgage interest rates...Challenges still exist to get purchases and refinances to closing due to tight underwriting guidelines and appraisal difficulties..."
cara,
It accomplished more than that. It soaked up alot of vacant property on the low end. It gave a return to those investors who had jumped in and renovated blighted areas. Presumably, it helped increase tax assessments and helped the coffers of some HOA's.
Much of the demand pulled forward helped neighbors. I've seen dramatic improvement in many locales. This does little for the upper-end, but that's not the area that needed it most.
The tax credit may be a failure as far as housing goes nationally, but as a broader stimulus it put money into the hands of people who are more apt to spend it immediately. And spend it in the areas of the economy that have been hit the most by the burst bubble.
Except for me of course. I sent my amended return in 11 months ago to the day, and still don't have the $8k.
Va,
Indeed it did provide a well-defined timing opportunity for rehab flips. (not exactly one of the stated goals of the program...)
As far as soaking up inventory,
wouldn't the low prices and low interest rates have done most of that on their own?
But you're right, there probably is some price point below which most owner-occupant buyers literally needed the reimbursement of $8k cash-on-hand to feel as if they were in a position to buy. I'd hazard roughly $200k.
(point under which most non-investor buyers would otherwise not have bought, above which most owner-occupant buyers were simply pulled forward or would have bought anyway). Very roughly, could be $100k, could be $300k.
VA_Investor:
"Much of the demand pulled forward helped neighbors."
For every neighbor it has helped, it will have hurt one down the road. There is no net positive associated with this tax credit. In the end it just placed more folks underwater.
housebuyer said
Personally I actually think its much better that employers do 401Ks now instead of defined benefit plans. Way too many major companies fail/failed to have the system work well for defined benefit plans
But there is a Pension Benefit Guarantee Corporation agency that kicks in when companies go bankrupt or can't fulfill their pensions. Maybe people do not get 100% of their promised pensions but many get 85%. I bet many people are still better off at 85% than what they would have gotten with the 401k. I'm just armchairing so would find a study interesting.
My biggest reason for favoring the defined benefit plan despite the flaws is that most Americans do not know how to invest nor are good at withdrawing enough money for the 401k (let alone sign up for it). Pension = professional fund manager. 401k = range of people who have no idea the pros/cons of bonds, equities, treasuries to people like you who manage money for a living. I think most Americans fall on the have no idea end of the range.
If we are really going to make everyone do 401ks then there really needs to be more on investing during one's K-12 (likely 9-12) education.
Interesting comments on my quote from Parade magazine on parental help.
I think a lot of it gets to cara's point about her mother's idea let's see the children enjoy the money while we are alive rather than wait until we are dead. Despite my last comment about 401ks and not having enough for retirement, I think the reality in our area is we have a lot of 60+ people who have WAY more money they'll ever need in a million years for retirement even if they live to 90. So they give some of it to their 25-40 year old kids for down payments and trips and so on.
Interesting point about paying to have the kids visit when you live in separate cities. Maybe I would get offers like that if I were not a short drive away from home. ;)
Ace also had a few good point about disabled children who cannot live on their own. I wonder how that affected the data.
Speaking of pulling demand forward and stimuli, is anyone else surprised how little demand these rock bottom mortgage rates are creating?
Back when I used to spend a bunch of time arguing with Robert I think we both agreed that continued low rates would continue bringing demand. Now rates are even lower. Where is the sky high demand?
Shouldn't there be blood in the streets to buy a home at 4.5% and dropping?
Not saying I agree with all of Contrarian's views in general, but CNN Money has an article today talking about the possibility of deflation:
Federal Reserve Looks to Battle Deflation
There are a couple of ideas for ways the Fed might have to combat deflation in the near future.
Some are looking for the Fed to start pumping more money into the system by resuming purchases of mortgages and long-term treasuries as it did in 2009.
...
He suggests the Fed follow the lead of the Swedish central bank last year and establish a negative interest rate on those excess reserves, charging banks to keep excess cash, rather than paying them.
And of course that article seems to directly contradict statements in another article on the same page from today, co-authored by the same writer!
Bernanke: Recovery 'unusually uncertain'
"Anyone hoping for a signal that the Fed was preparing to provide some further monetary stimulus to boost the flagging U.S. recovery would have been sorely disappointed," said Paul Ashworth, senior U.S. economist for Capital Economics.
"The bottom line is that monetary policy isn't going to be loosened; the best that can be said is that it isn't going to be tightened for several years either."
I don't know where to get reliable news anymore. Writers certainly aren't experts - and recently it seems that the "experts" aren't experts either.
Jeremy-
I listed to a lot of his testimony and he made a couple of clear points in my opinion. First inflation is not a problem at all so they will be able to keep interest rates near zero for a very long time. He also said that although there is unusual amount of uncertainty he believes that we are still on a path of growth. As long as we are on this path he will not loosen monetary policy, if however, the economy deteriorates from here he could start adding more stimulus and he currently has a lot of additional options.
Low rates are creating demand. Ratchet up rates to 6% and see what happens.
Consumer confidence seems to have stalled...even in Washington. That's holding back major purchases.
Robert-
I agree I think 6% rates would be devastating for the housing market. I still think prices will fall even at current rates, but I think they would fall faster and further if rates rose quickly.
"Cara points out in today's bits bucket how D.C. is different. (Apologies to Ben Jones for our specialness)."
Ben Jones -- now thats a name I havent thought of in a while...
cara,
My only disagreement is whether those trashed-out, blighted areas would have been purchased by first-time owner occupants. 8K wouldn't make most get out of the car, let alone go inside.
I don't remember who said that the person down the street was hurt, but they obviously didn't drive around much in 2007 and 2008 in order to compare to today. Which is better? Renovated owner-occ homes or abandoned blight? In some areas it seemed every 4th property was vacant and trashed.
Sure, investors made money. This is America, last I checked. But the 8K put people into those (now) affordable, renovated homes.
TBW, you make very good points about DB plans. A major reason they are less commonly used today is not because a lot of companies who have them are failing; the vast majority are quite profitable. It's primarily because investment risk (and attendant costs, since private employers must keep DB plans fully funded) is borne by the employer. Employers have no such obligations with other 401(a) plans, or with 401(k)s. Another problem is that many employees do not understand why these plans are especially valuable, so the employers may not get the recruiting and retention "bang for the buck" from the plans that they should. And because benefits accrue more rapidly as you approach retirement age, for younger employees who aren't going to be there 40 years, the financial value of the benefit truly may not be as great as that of a DC plan.
There is risk in the market, even for the best-educated investors. I agree with you that most of us don't have enough financial training, but that alone wouldn't be enough. And there are other reasons why DB plans provide much greater security to employees. And from a societal standpoint, if many people do not have adequate funds to survive at retirement, we'll again face a situation similar to that in 1935 when Social Security was implemented. The problem does not go away, unfortunately. It's complicated.
Re: why comfortable 60+ year olds might help their kids with housing costs, etc., there is also a possible reciprocity motive. If the 60 year olds have kids or grandkids who could benefit greatly from help now, those kids/grandkids in turn may help the 60 year olds, financially or through other care, later. That is certainly the way it's done in many other cultures.
Va_investor,
I may be misunderstanding you again... Apologies if so.
"My only disagreement is whether those trashed-out, blighted areas would have been purchased by first-time owner occupants. 8K wouldn't make most get out of the car, let alone go inside. ...
Sure, investors made money. This is America, last I checked. But the 8K put people into those (now) affordable, renovated homes. "
I'm a confused, are you saying that investors wouldn't have gone in to scoop up foreclosure bargains if the $8k for owner-occupants weren't out there to attract future customers?
Sure they may have made more money than they would have otherwise because greater demand meant higher retail prices, but at winter 2008 foreclosure prices those homes could have been rented out for a great return if the resale returns weren't high enough.
i.e. wouldn't the uber-low REO prices, auction prices, and bulk prices have been enough to spur investment in a region with such a solid employment future?
I can't help but go back to Jim the Realtor, "nothing price won't fix".
The investors were able to recapitalize their investments (if that's even what it's called... sorry) faster through resale, because the $8k made their end-customers buyers not renters. That's the only dynamical difference I see.
cara,
You are correct that my point was less than clear. I'm not sure when the 8K came into effect (Jan.2008?).
Investors could have kept properties as rentals (as I have done, for the most part), but I believe it's better for communities to have owner-occupants. And I truly believe in the forced saving aspect of ownership.
The 8k put many people into renovated and affordable homes. Investors played an important, private sector, role in making that happen.
I truly believe that 8K removed a barrier to entry for the lower end and was part of the transformation of many blighted areas.
cara,
You are correct that my point was less than clear. I'm not sure when the 8K came into effect (Jan.2008?).
Investors could have kept properties as rentals (as I have done, for the most part), but I believe it's better for communities to have owner-occupants. And I truly believe in the forced saving aspect of ownership.
The 8k put many people into renovated and affordable homes. Investors played an important, private sector, role in making that happen.
I truly believe that 8K removed a barrier to entry for the lower end and was part of the transformation of many blighted areas.
Va_investor,
Thanks, I think we're on the same page now. Hopefully you're right, that over the long term, the new owner occupants who needed the $8k to spur them into ownership will end up better off for having made that leap. (and thus their neighborhoods as well). I worry about their ability to cover basic maintainence in the short term, but to an extent that depends on how quickly the local economy turns around giving them the raises they need to make the payments not just do-able but comfortable.
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