Dean Baker says it best, if you ask me once I found out that the $15K credit was not only open to first-time buyers, but all home buyers:
Still, many critics doubt that the credit will have as deep of an impact as Yun and Howard predict – and some have been scathing in their critiques. “This is the biggest, most hare-brained scheme,” said Dean Baker, the co-director of the Center for Economic and Policy Research. “If this passes, I’ll be amazed.”
One major objection is that the credit is available to existing homeowners, who would essentially be selling house A to buy house B and thus have no stimulus impact on the economy. Baker called it a “house-flipping subsidy.”
Plus, he added, it gives a credit to others who would buy anyway.
“I actually like this bill,” Baker said sarcastically, “because, with home prices in Washington plummeting, I’m considering buying a house.”
He also raised the possibility that it could be gamed: What’s to prevent two people from selling their houses to each other, in name only, just to claim the $15,000 each?
Dean Baker is right: this is a gimme for real estate agents who earn a commission for each and every sale. It promotes flipping (and adding as much inventory as it gets rid of). There is no incentive for a first-time homebuyer that will actually reduce the inventory, since as soon as the stimulus is gone, prices will fall to reflect the new reality (likely at least $15K).
This is proof positive that the only proper action is to let home prices fall to their market-clearing price. Any attempt to influence when that happens extends the recovery. Sad, really sad day for American taxpayers.
I don’t think “selling of a house in name only” argument works unless you have a ton of cash. Also, if this was the case then why weren’t people in California be doing this all the time to keep down their property taxes low by “selling” their house cheap? $15,000 credit is a dumb idea anyways. If we are going to spend a trillion dollars then I’d rather have the gov’t give a million dollars to every income tax payer.
Well. $1M to each would only allow for 1Million subsidies.
With just over 100Million households, it would only allow one in 100 to get it. And, we have no better productive capacity.
I’d be happy to see the $1T get us off of foreign oil once and for all. We’d save that much over the longer-term and have some useful use for the money. The government could buy every household in the US a Chevy Volt and we’d still have money left over. (Pretty much anything sounds better than what we’ve got). I’m sure we could get a good volume discount on 100Million cars. We could also get some recycle value out of our current cars.
OK, so I’m just joking, but jeebus, couldn’t we do something better with our money than giving it to bankers and real estate agents? (no offense, Brad)
Chuck
>>”couldn’t we do something better with our money”
Ah HA! That’s exactly why (seemingly) everyone is in trouble. That is also why a “bailout” won’t work. We (gov’t & individual) have no money to begin with. It’s funny how for at least the last 20 years we’ve been trying to figure out how to lower the federal deficient and now we want to double down so we can break even?
I think this youtube video parody of stimulus captures my thoughts well.
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http://www.youtube.com/watch?v=dEDIyztZGBA
I really enjoy this blog btw!
Chuck,
I think giving money to real estate agents would be an excellent stimulus package as long as a lot of the money comes my way.
Brad
If more financially qualified borrowers are buying homes from people who may be heading toward foreclosure, isn’t that a good thing?
Also, considering the cost to buy and sell a house, added to the declining value, doesn’t seem to add up to a profit on flipping, even with a tax credit.
Ditech,
There are very simple ways of managing the cost of “buying” a house that would negate it.
Say scammer 1 and scammer 2 both own houses across from each other.
scammer 1 and scammer 2 gets an escrow company to manage the transaction with “seller financing” and no title search. Get a lawyer to draw up some documents and blammo. This kind of transaction could cost about 1500 or so bucks. Not a bad return if you get 15000. Also, who says you have to “make payments”? After you collect your $15K in tax, what do you care happens to the house? If you lose it to foreclosure, you’ve got a great story to tell the IRS about how you’re not even able to make payments.
Talk about a racket:
1. you get to live rent free for a while (or heck, even rent it out to make some coin while it’s in foreclosure) That could bring in some 30K to 50K since it takes more than a year to foreclose
2. You get the 15k Tax benefit (because, really, who’s going to audit this?) the IRS can’t even handle its current load. Besides, on paper, it’s all legit. “Circumstances” made it impossible to fulfill the letter of the law, but you bought a house and owned it for 2 years.
3. At the end, you can sell your story to the newspapers about how sad your story is that the big bad mean bank is taking YOUR house away. Get them to negotiate a cash for keys amount and you’ve won all around.
Chuck
PS, I must say, you need some help with your creativity. This one has fraud written all over it.
Like this guy:
http://www.news10.net/news/sto.....38;catid=2
A bunch of sales to fake people, and he’s outta the country.