Friday, February 6, 2009

The Republican Home Buying Scam

There's been a great deal of attention given Senate approval of a provision to the recovery bill that gives a $15,000 tax break to anyone who buys a home before the end of calendar year 2009. Originally proposed by Sen. Johnny Isakson (R-GA), it's the kind of legislation that Republicans and real estate developers love and that Democrats fear to oppose. Analysts expect the measure to cost about $19 billion.

At first blush, this seems like a good idea. After all, Economics 101 says that this will encourage people to buy homes, and that the increased demand will serve as a firewall against a continued decline in the value of existing homes. Thus, homeowners who aren't looking to buy will benefit as well.

However, the effect of the tax break is unlikely to be so cut-and-dried. To begin with, a large portion of the current crisis stems from too many people buying homes. One might argue that the tax break can only exacerbate the problem by encouraging people who can't afford a home to buy one anyway, thus inevitably adding to the number of foreclosures, which will in turn cause another downturn in prices.

Moreover, unemployment is now 7.6%, the highest since 1992. (As this statistic counts only the number of people actively looking for work, the real number is higher.) People who are out of work and people who are afraid of being out of work do not buy homes. So, whatever benefit the tax break provides, it's going to go the people who are economically secure and/or to bottom feeders scooping up foreclosed homes on the cheap. They are already getting a good deal; adding fifteen grand to their take is like spending money to feed a dog's fleas.

Beyond that, consider the elemental math amidst a climate of -- at best -- uncertainty. No one knows what will happen to home prices in 2009. We do know that they cratered in 2008 despite a favorable outlook at the beginning of the year. Last year, the median (average) value of a house declined 13.1% to $181,300. Thus, a home buyer considering the purchase of a median priced house (again, $181,300) must consider at this stark reality: If 2009 home prices drop 13.1% again, the house she is considering will be worth $157, 550 at the end of the year, or $23,750 less than when she bought it. Even adding in the $15,000 tax break, she's behind where she was when she started out.

It turns out that home prices can decline no more than 8.25% for the tax break to begin to look attractive to most buyers. And that might be a good bet. It might not be, either. In any case, it doesn't address the most basic question of all, which is: If you think home prices will decline any amount in 2009, why buy now? For most people, their home is their savings. They're not inclined to gamble, and who can blame them? After all, the housing market is not stable: It remains in an uproar. 

In the end, this tax break is a typical Republican dodge that benefits the affluent and the economically secure at the expense of everyone else. Even in this day and age, $19 billion goes a long way, and we can use it on much more deserving and productive expenditures...

Conservatives think that money for mass transit will not stimulate the economy. Think again....

  • Number of Iraqi deaths attributable to the war: 800,000 - 1.3 million
  • Number of displaced Iraqis: 4.5 million
  • Number of war widows: 1-2 million
  • Number of orphans: 5 million
  • Per cent of Iraqi households with access to clean water: less than 40%
  • Per cent of children in Basra who cannot attend public school: 40%
  • Per cent of children in Baghdad who cannot attend public school: 70%
I don't know how anyone can argue that this portrays a people free from terror or that this somehow merits the dubious claim that Bush's war made America safer...

Friday's Choice: It's the first weekend of Carnival in New Orleans, and "We Will Walk Through The Streets Of The City" with Glen David Andrews and Trombone Shorty:

No comments: