An interesting article came out in the Wall Street Journal today. I have provided the link here because, well, it would be weird if I didnt. The article basically posits the question of whether or not the $8000 Home Tax Credit helped or hurt the market. While it doesn’t give a direct answer, it does cite to evidence suggesting that the communities that used the tax credit the most have been the HARDEST hit after it had expired. Sales plunged in the year to year comparison. Ive been saying this all along to my clients and on this blog. I believe, and this is based on real life experience with my clients, both Bankruptcy and Real Estate in New York, that the tax credit has done zero to fix housing. Furthermore, I think when you combine this tax credit, with the mortgage rates we have, AND the availability of FHA mortgages, we’re basically asking for “it” all over again.
Many of my clients who filed for Bankruptcy purchased more house than they could afford on the belief, which most of us, me included, had that housing was never going to drop the way it did. Well…it did. We now have a situation where people are being subsidized into taking on more debt, more house, etc., by offering incentives to purchase. And while, yes, I can understand that something had to be done to stabilize the market, I nevertheless believe that providing First Time homeowners with cash to be things which cost hundreds of thousands of dollars, irrespective of whether they can afford it, does nothing to get us out of this hole.
Again, Im not an economist (I would work less hours), nor am I a TV talking head (I would spray tan…more), but I can tell you that I meet countless clients on a weekly basis for both Bankruptcy and for Real Estate in New York City. The common denominator for the Chapter 7 bankruptcy clients in New York City is that they bought and they couldn’t afford it. They did it because the market gave them the means to do so (through sub prime loans, no money down purchases etc.) What we are seeing now almost mimics this. Tax credits which are basically a band-aid, mixed with low mortgages rates, and FHA loans (which, some, including me, have serious reservations about) have the potential to now bring forth another perfect storm onto the market.
My two cents (adjusted for inflation).
