Everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available.....There isn't some new pickiness in the human character. The tax credit expired. Can we get a frank analysis of whether or not it was a bad policy?
June 17, 2010
The NYT headline says: "Housing Market Slows as Buyers Get Picky."
But the text of the article says:
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My neighbor owes me $900 after almost a year, that he owes me for his part of a fence between our properties, and which he says he will pay me as soon as he gets the refund for buying the house from his mother-in-law last summer.
Of course you will not get "frank analysis Ann". This is the New York Times. They are basically Obama's state owned media. Every piece of bad news that can't be ignored or explained away is "unexpected". They exist to keep the HDHouse's and Jeremy's of the world in their slumber of ignorance.
The offer of free money is always a temptation that brings out the money wise folks. Without it they will not come out and face the uncertainty that Obama's unknown future of redistribted wealth holds. And the other folks not wise with money are all dead in the water credit wise. Free Government money has distorted another market. Just wait and see how Health Insurance plans start to sky rocket in costs to meet a "minimum Coverage" ends covered people like the minimum wage ends teen workers being hired.
People bought and sold houses, at less inflated prices, and even the condo market improved in my over condo-built Madison community,so it must be good, unless one wants to discount anything that happened during the Obama administration.
I vaguely recall an article in the local paper that noted the housing market hadn't dropped here after the expiration of the tax credit. For some types of houses, at least. If you're trying to sell a condo in Madison's vastly overbuilt Madison condo market, you're still out of luck.
But it may have been written by a realtor, or only quoted realtors, so I'm not sure how unbiased it was. Realtors are always saying you have to buy NOW!
It was a price control and a political payoff. (Payoff to the NAR and the mortgage business just as much as to the home buyers.)
One question is whether it was effective in temporarily supporting the market.
The other question is whether it is/was a good idea to support prices in an asset market at all. Economists and reasonable economics bloggers (like CR) pretty much thought it was a terrible idea from the get-go. If I remember correctly, even Krugman was against it.
Another issue:
What possible authority does the NYT have left on economic matters? They have been consistently wrong and behind-the-times for years now.
You'll have to wait for Krugman's analysis.
Just remember to read it upside down or backwards.
r-v: Our analyses of the condo market seem to be at odds :)
"People bought and sold houses, at less inflated prices, and even the condo market improved in my over condo-built Madison community,so it must be good, unless one wants to discount anything that happened during the Obama administration."
They would have bought and sold those houses anyway. And to the extent that they were "less inflated", that comes at the cost of the government spending the money. So rather than buyers and sellers paying, the taxpayer does. And there is nothing about the credit that would cause the price of homes to fall. In fact, it would do the opposite. People will price in the credit and be afford to bid higher than they otherwise would have.
Like cash for clunkers, the entire thing was a waste of time and money.
Wasn't Althouse going to sell Meade Cottage and move into a downtown condo? I wonder how that would have played out.
Even though a future investment is enticed to be made in the present the future still arrives. The same results in this case as in the cash for clunkers program. Things will even out over time but when the inducements are gone they are gone. The inducements obscure the true supply and demand characteristics of the market thus leading to "surprise" results like this. Perfectly predictable.
Also predictable: tax collections from capital gains will spike this year and will decline next. Stocks will have to rise another 15% next year to provide the same gains as those sold this year. Why wait?
I forget where I read it very recently (no sleep - baby at home) but it is very apt:
The trouble with stealing sales from the future is that someday the future arrives.
WV: Shlex. The Hanna-Barbera knockoff of Shrek.
The housing market is still sick. That's because the jobs market is sick, which is because the economy is still sick, the banks still fearful, the mortgage market still limping along on subsidies, the government still irrational, the media still ignorant.
Right now we are getting away with it because the Euro is so problematic that governments and investors prefer dollars. Governments (China, Japan, France, England, Germany) own $4 trillion in dollars. They would love to get rid of a big wad of these, but can't right now. So the Federal Government can borrow cheaply.
This will change. When it does, everything else will change too. The year 2008 will look like a Golden Era.
It never occurs to the NY Times that regulation could have anything to do with it.
"frank analysis"? From the NYT? huh?
This was Cash for Clunkers part deux.
It sounds polemical to say it, but really: the Obama admin and the Democratic leadership don't understand basic macroeconomics. They are not bad people, but they don't understand. This is a real problem; most people, I think, assume most leaders are competent, when life experience demonstrates over and over again that leaders are often clueless.
"It sounds polemical to say it, but really: the Obama admin and the Democratic leadership don't understand basic macroeconomics."
None of their supporters seem to. So why should they?
Hagar:
FYI- that home buyer tax credit did not apply when the transaction was between relatives. You may be waiting a very long time.
Comrade X said:
"It never occurs to the NY Times that regulation could have anything to do with it. "
Unless the republicans are in power.
Like cash for clunkers, the entire thing was a waste of time and money.
It was worse than a dumb idea.
- It also delayed to a future, but required, time when housing prices reach their true value
- it again brought more people who should not have been there into the market seeking "free money". These folks will default later.
at least we didnt bulldoze houses this time.
Drill SGT,
Cash for clunkers made as much sense and was based on the same fallacy as carpet bombing the country so we could all get rich on the rebuilding. Yes, lets get rich by destroying assets. That will work.
Can we get a frank analysis of whether or not it was a bad policy?
From the Times?!?!?
I am not holding my breath, and I wanted that fence anyway to keep his (deleted!) dogs out of my yard.
I tried to look up "stimulus funds," and as near as I can see, they now claim to have expended 40% of the 787 - or 850 or whatever - billions, and I still think that by "expended" they only mean that the money has left Washington, D.C., and is now out among the states being fought over by the various agencies and political machines.
Some "emergency requiring immediate action"!
As someone who emailed Glenn Reynolds said, "The problem with snatching sales from the future is that eventually the future arrives."
Quite simple except to the simpleton, Obama, and is simpleton crowd.
Right now we are getting away with it because the Euro is so problematic that governments and investors prefer dollars. Governments (China, Japan, France, England, Germany) own $4 trillion in dollars. They would love to get rid of a big wad of these, but can't right now. So the Federal Government can borrow cheaply.
The rest of the world stopped lending us money about a year and a half ago. The reason the interest on government bonds is low is they are being purchased by the fed and kept as assets on the fed's balance sheet.
If to you that sounds a lot like "the government is printing money", give yourself a gold star.
Madison Man, according to the Dane County Market site house and condo sales were up 22% in May, which confirms what my real estate friends said. And John they have pointed out that many first time buyers were pulled into the market by the tax break and were able to by sooner. Further the previous market was inflated because of speculators flipping properties and crooked mortgages that were sliced and diced...I thought that was obvious by now. I take this so-called distortion of the market.
They would have bought and sold those houses anyway.
Not necessarily. There would be two effects -- one is that people who wouldn't be able to afford houses ordinarily (e.g. the type who a few years back would have been getting exotic interest negative amortizing mortgages or whatever) would be able to purchase houses. These aren't people who would be buying otherwise, so for these purchasers, the credit would actually have had the effect of helping lure truly incremental money into the housing market.
In addition to these cases, there's also the cases you seem to be focusing on, which is people who would have bought sometime, but who timed their purchases to take advantage of the credit.
It's a mix, overall. The fact that the market has been heavily impacted now on a year-on-year basis suggests that there was probably a whole lot of the latter going on, but doesn't mean it was all just pulling future sales into current periods.
I am beginning to see some construction project signs in this area with the ARRA logo and "Coming Soon," but no actual construction yet.
Can we get a frank analysis of whether or not it was a bad policy?
Why would you look to a reporter to evaluate that? What makes them in any way qualified to pronounce on policy? Journalism is for the political horserace, the entertaining sob story.
If you want something that tells you whether it's a good policy or not (well, with more authority than, anonymous posters on the internet), the journalist has to be something more than just a journalist. Like an economist or something. Or at least a real estate worker of some type.
AJ,
A realtor that could not get around that should go into some other line of work.
The problem with politicians is, the instinct to "do something, anything!" is so overwhelming that they do it - even if it does nothing but waste money and pull sales forward.
Cash for Clunkers & this housing tax credit both prove it.
Frank analysis of bad Obama policy from the NYT?
When did you become a comedienne, Ann?
@John:
Like cash for clunkers, the entire thing was a waste of time and money.
Well, with one difference. Unlike cash for clunkers, the 1st time home buyers didn't have to vacate their old apartment/rental so that it could be demolished.
Buyers aren't picky, they're underwater and so can't move.
They house they want is as cheap as the house they'd need to sell - they still own one house worth of house - but the paperwork can't happen.
The people that set the expectations that the media uses better start resetting their expectations down in all sectors.
How may months can unemployment "unexpected" go up until the idiots that expect it to go down are ignored?
My wife and I are watching South Florida very closely, trying to see the bottom of prices there, and frankly, it's not at bottom yet. One property we are interested in was purchased new for $700k at the beginning of 2007. The essentially identical house (size, shape, level of amenities, construction date) right next door just sold for $280k last month in a (very) short sale. And it's not even clear if that is a bottom.
One lesson in all this is that there is a federal role in establishing a premise level database of all residential properties. That way things like same day flips and all sorts of other stuff that contributed to this mess would be evident in real time, not in the 12-18 month rear view mirror.
How may months can unemployment "unexpected" go up until the idiots that expect it to go down are ignored?
That's a political calculation, not an economic one. The NYT will always be able to find someone who says, at the very least, things would be way worse but for Obama's policies.
Which is one of the reasons the NYT doesn't matter as much as it used to.
Hagar:
A way around it? Sorry but that would be tax fraud. The law specifically excludes transactions between family members. Sure your neighbor could file for the credit and he'd probably get it especially since his name is likely different from his mother in law. But it would be a felony.
"Why would you look to a reporter to evaluate that? What makes them in any way qualified to pronounce on policy? Journalism is for the political horserace, the entertaining sob story."
It seems to me that the reporter is noting a trend and, among other things, looking for an explanation. For example, the second page begins:
"Information about scuttled deals tends to be anecdotal, but Mike Lyon of Lyon Real Estate in Sacramento estimates that 15 to 17 percent of sales in his area are falling apart at the last minute as sellers prove unable or unwilling to give buyers what they want. In a normal market, he said, the figure is about 5 percent.
"“This is the fallout from all the foreclosures: Buyers think that anyone who is selling must be desperate,” said Mr. Lyon, who employs about a thousand agents. “They walk in with the bravado of, ‘The world’s coming to an end, and I want a perfect place.’ ”
"The tax credit, for all its flaws, may have helped avert financial Armageddon, but the final effect is still being tallied...."
It seems to me that there is grasping toward trying to understand why something is happening and what the effect of the tax credit was. The article seems to stress the personality quirks of the buyers more than the rational behavior pattern caused by changes in the tax law.
So the reporter could have interviewed some experts about why things occurred. The reporter isn't the expert, but people are quoted in the article trying to explain things.
Eric said....
The rest of the world stopped lending us money about a year and a half ago.
Just not true, Eric.
The Fed was buying treasuries at auction for a relatively brief time, and stopped at the end of October 2009 after about $300 billion. The main purpose of the buys was to hold down rates to prop up the housing market. The mortgage rates stayed down, but housing did not improve. Perhaps it would have been worse but for what the Fed did.
If foreign buyers had stopped, the economic world would have ground to a halt. China has about $900 billion in US Treasury holdings. They have been regular buyers throughout the economic crisis, though their rate of buying had slowed until the last three months, when China, Japan and the oil exporters all started increasing treasury purchases significantly.
The total foreign holding of treasuries is about $4 trillion.
At the last Treasury auction, about two thirds of the buyers were foreign, about one-third domestic. This is close to the usual norm.
I do not know where you got your info, but it's totally wrong. The rest of the world continues to finance our deficits, mainly because they see it as suicidal not to. And right now they do it at interest rates which are nonsensical in light of the long term (since 1968) downward trend of the dollar.
This will all change. Eventually it has to. No one knows exactly how. No one knows exactly when. With luck the change will be gradual rather than cataclysmic, but no one knows that either.
Ann Althouse:
I agree with you on inadequacy of the the report, but the tax credit is a tiny blemish on the far greater ugliness that is the housing market and its financing mechanism. It was a small prop in a larger web of subsidies that include low interest rates engineered by the Fed, a mortgage market totally dependent on Federal purchases of mortgages either directly of through the insolvent and subsidized Fannie May and Freddie Mac, local subsidies in the form or roads, utilities and sewers (often federally funded) and the mortgage interest deduction.
Despite all these long time crutches, the market refuses to walk on its own. This is partly because of the weak jobs market, fear of job losses, fear of higher taxes. But the main reason is fear of further deflation in the housing market. Because it's so dependent on the federal government, it's a very unstable market. You could see a similar phenomenon in the entire economy if prices deflate generally--people waiting to buy because of expectation of lower prices.
Our "recovery" skates on extremely thin ice. The tools used in 08-09 by the government to pump things up won't be effective in a new crisis, or won't even be usable.
The fact that NYT won't analyze something as simple as the housing credit shows how little we should expect from the media on these bigger, tougher issues.
Headlines cannot be trusted. At least the body of the piece presents a plausible hypothesis. Nothing is worse than the daily "explanations" for fluctuations in equity markets.
My daughter qualified for the first time buyer's credit. She was in her house in November. She still hasn't received her $$.
I bring this up because of all of the fed hectoring of BP to PAY UP AND DO IT FAST!!
PS My wife's a realtor. Market is picking up but a lot of short sales. Biggest obstacles for short sales are the banks. Not that they don't want the sales to go through, just that they're so damn slow. Some folks foreclose before the bank is able to approve the short sale. I know it sounds crazy but banks just weren't meant to be realtors.
Ann Althouse said...
It seems to me that the reporter is noting a trend and, among other things, looking for an explanation. For example, the second page begins:
"Information about scuttled deals tends to be anecdotal, but Mike Lyon of Lyon Real Estate in Sacramento estimates that 15 to 17 percent of sales in his area are falling apart at the last minute as sellers prove unable or unwilling to give buyers what they want. In a normal market, he said, the figure is about 5 percent.
This is a clear cut example of the reporter seeing correlation as causation and he falls into that trap.
If the NYT was doing its job, they'd write a story now about how both GSE's are bankrupt and sucking at the Federal teat, they can't prop up the housing market like they used to.
So Obama is using FHA to make the same sort of bad loans that the Congressional Dems rail about on the floor. Those no paper, no down, no job loans.
Don't be surprised next year when the FHA needs 200 Billion to cover its gambles.
ot..
Big NBA final tonight.
Go Celtics.
AJ,
So? The Feds are passing out free money, and everybody want these deals to go through in their own interests. So, "Nothing to see here folks; just move along, please."
Go Lakers. Although I'm pretty sure the Celtics have history on their side.
"Housing Market Slows in Exactly the Manner Everyone Who Understands Economics Predicted when the Tax Credit was Enacted" probably wouldn't have fit on the page.
It's this new-fangled concept:
Supply & Demand
Wow.
Alex said...
It's this new-fangled concept:
Supply & Demand
The Obama folks prefer the term:
now discredited corporatist system
you know, the system run by the enemies of the people?
The article is an analysis of sorts. Perhaps it's what soothes the anxious liberal soul.
There are many economists who believe and promote this crap, too, so I can't really blame people for buying into it.
My own profession's entire Medicare payment schedule is based on the discredited labor theory of value.
Crack Emcee might chime in that huge numbers of people adhere to New Age principles, equally fallacious junk.
What hope is there when conspiracy theories, unicorns and perpetual motion devices are a matter of faith.
More ominous is the fact that this years foreclosures will exceed last years. How did the NYTs skate around this.
Krugman has weighed in.
The problem is we're not spending enough money we don't have.
There.
Just kick the can down the road to infinity "and beyond."
The tax credit 100% helped house sales, and the expiration is indeed the reason that sales are slowing again.
However, the tax credit was horrible policy. The money spent on the tax credit could have been used in other stimulus areas that would have been vastly more effective.
The housing market needs to reach equilibrium. All this did was delay that day.
DTL,
Don't ever say I won't give you credit. You are exactly right about the tax credit. While I am sure we disagree about how the money should be used, we both can agree it could have been used better elswhere.
Excellent point AA - "The article seems to stress the personality quirks of the buyers more than the rational behavior pattern caused by changes in the tax law."
The reason none here are really trying to parse this article is because we don't trust in reporters to report. The reporters are either ignorant or agenda driven. Many commenters here are smarter than most reporters.
When reporters decided to ditch in-depth reporting they made themselves a commodity. Simple enough for us to look at the facts presented in the article and many facts from many other articles and come to a better conclusion. We barely trust them for the facts let alone their conclusion.
They can find all the "experts" they want and it wouldn't make the article any better.
"The tax credit 100% helped house sales, and the expiration is indeed the reason that sales are slowing again."
Did it? 100%? You dont think a large chunk of those sales were from people who would have bought eventually anyway?
I agree about the waste of money.
What will turn around the housing market will be to let those who can't afford to hold onto their homes actually defaut and lose the home, THEN have the various banks, in the interest of getting rid of these turds on their balance sheets actuallly lower the prices, and have homeowners who are trying to sell actually realize they aren't going to get what they wanted for their house. There needs to be an actual bottom so that those who were priced out can now buy in. That means sellers are going to get hosed short term, but that's all part of the housing cycle. We're now in a buyers market, the sellers still want to hold onto seller prices.
And dare I say it, let's bring some risk back. You know why the housing market was so good for so long? Because of what we now term as risk. Having banks lower rates so that more people could afford housing caused housing prices to skyrocket because more people could buy houses. Which is the sign of a good housing market.
People, you can't have a good housing market, and no risk. Even though it cratered out, all the negatives that we are now begrudging (ie the credit default swaps etc). were what led to the rising housing market.
If you want a housing market that goes gang busters, you have to recognzie that it might also crash after the initial exhuberance. But if you take away risk you're never going to have a good housing market. It might be better than it is now, but it will never rise to the level of the 90's. Because, unless houses are profitable why would you buy a house as opposed to rent? Housing is extremely expensive, and but for all the incentives (ie you can buy it with little money down, can get tax writeoffs etc) it's an investment out of the price range of most Americans.
Certainly we should learn the lessons of what we did wrong here (75% of it was govt caused by the way). BUt punishing banks and decrying "greed" is no way to bring back a vibrant housing market. More greed please!
But first, drop the prices a bit more so that I can afford a house.
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