2. The homebuyer tax credit makes buying a house more affordable.
…In areas where there is strong demand for housing and the supply of new housing is limited — including the Washington metro region — tax credits may result in the bidding up of home prices. In other words, the program has probably led to higher prices in these areas than we would be seeing without it. This means that some of the benefit of the tax credit is being passed on from homebuyers to home sellers.
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What’s astonishing is how many people thought the tax credit was meant to benefit buyers. It was obvious from the beginning that the sole purpose of the credit(s) was to artificially inflate housing prices — which benefits only the sellers, not buyers. Same goes for artificially supressed interest rates and special government loans (low down, low interest, extended duration, hybrid ARMs, etc.).
Hopefully, someday, we will be left with a smarter pool of buyers who will understand that the best time to buy a house is when prices are low, interest rates are high, and there are few/no “incentives” to buy a house.
Until then, the most short-sighted and irresponsible buyers with access to loose credit and myriad “incentives” will be the ones who set prices — especially when supply is artificially constrained as it is now.[/quote]
The problem is all the people who were already in the process of buying. They had already made an offer or signed a contract or (if the rebate is backdated) already purchased. Suddenly they get a big cash reward from Uncle Sam that they hadnt counted on, making their decision to buy all the sweeter. Then, they go out and tell everyone they can the awsome deal they just got. A few of those people go out to buy to get their deal, increasing demand and raising prices. It is this second, usually much larger group, who looses. The first group paid uninflated market prices AND got the credit.
Look at cash for clunkers. The first people in, before the thing was even passed, prob got market prices, manufacure incentives and the CFC stimulus. The people rushing out at the end got CFC, higher prices, and no incentives. Plus they prob had low inventory to choose from, meaning they had to settle on what they got.
As long as it is still socially polite to give advice to go buy something (like ‘I’ just did) but rude to argue against those purchases, we will be stuck where we are. The trick is to be in the first group, or willing to wait out all the ‘advice’.
