Profile picture for Mequonite

Is the $15k tax credit comparable to subsidizing firewood for a campfire in a monsoon?

All the discussion for the $15,000 tax credit seems like a wonderful idea for those who are purchasing today or in the near future.  Le'ts take a more macro econonmics look at this idea.  The intent of this tax break is to reduce the glut of unsold properties on the market.  The problem with this tax break is that it is just a patch that'll need to be eventually repaired again.  The real estate market bubbled and needs correction.  How can the $15k tax break help in the long run? 
  • February 08 2009 - Mequon
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Answers (4)

Klarek is right.  Its a Buyer's bribe... another question that it raises is "what effect does it have on the current market?"

The answer probably will be increased activity.   Along with significant drops in the market (from the high) and lower interest rates, you will see many buyer's jump off the fence (because they really want to believe "now is the best time to buy").

Will that stop the market from correcting?  I don't think so, it might slow the drop in some areas that do not have the supply side issues that a Phoenix or Las Vegas might have, but in the long run we will be back to where we are right now, waiting for the majority of property tor reach correct fundamentals.
  • February 08 2009
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Profile picture for sunnyview
I don't know about the 15K not making any difference. I agree that the change may be temporary, but I see and hear a lot of interest from fence sitters looking to buy because of it alone. Soon the foreclosure freeze inventory will hit and these buyers will snap up the deals in the glow of the 15K incentive. After that, maybe prices will temporarily stabilize a bit due to the low priced foreclosure backlog being off the table. I don't know if it will last, but I have to say that the manipulation of staving off foreclosures over the holidays did make people feel like if they didn't buy they would miss their "bottom of the market deal." I think that's the whole explanation behind the uptick in existing sales that was reported recently by the NAR and larger media. The problem is the same with or without the 15K. The market must correct to healthy levels or it will only take longer to hit bottom. It can't start to appreciate in any real way until the market is healthy again.
  • February 08 2009
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Profile picture for klarek the realist
It's a buyer bribe.  But it doesn't make houses more affordable.  Just another futile effort to get people to jump off a cliff.  
  • February 08 2009
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A PERMANENT govt subsidy of $15k, would probably result in a permanent shift upwards in price of just less than that amount, in a stable market. This market of course is overbuilt, unstable, and dropping like a stone, so probably this stimulus will make a very small temporary difference. The homes I like have been dropping at over $7k a month, so obviously this wouldn't encourage me to jump very much, I can just wait a few months!
  • February 08 2009
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