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Home Publications Blogs Beat the Press Obama Deserves Blame, not Credit for the First-Time Homebuyers Tax Credit

Obama Deserves Blame, not Credit for the First-Time Homebuyers Tax Credit

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Saturday, 29 September 2012 11:44

Mark Zandi is anxious to give President Obama credit for the first time homebuyers tax credit, arguing that it helped stop the free fall in house prices. Actually, blame would be more appropriate. The credit was offered at a time when the bubble was still far from having fully deflated. The credit was not going to maintain house prices at a permanently inflated level unless the government was prepared to go the route of a house price support program. (This would be sort of like out farm price support programs, except it would be a lot more costly and would redistribute much more money upward.).

The main effect of the credit, as Zandi notes, was to pull people into the market earlier than would have otherwise been the case. As a result, many first-time homebuyers paid bubble inflated prices for houses. The price declines resumed as soon as the credit expired. When the deflation of the bubble had been completed many saw price declines on their homes that were two or three times the size of the credit. This loss was a totally predictable effect from offering the credit in a market where the bubble was still in the process of deflating.

The credit did not have any lasting effect on the housing market. It just transferred wealth from the government to homeowners wishing to sell and to banks and other mortgage holders who might otherwise have been forced to accept short sales. It is hard to see any positive effects from this policy.

Comments (5)Add Comment
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written by david j michel jr, September 29, 2012 10:25
amen! obamas policys suck,and only help his cronies, the big banksters!
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written by Kat, September 30, 2012 10:48
Honestly, any rube (i.e. me) could have seen this was bad policy.
Zandi, next Fed Chair?
written by Lee Adler, September 30, 2012 2:00
This chart proves that Zandi is either an idiot, or the next Fed Chairman. https://twitter.com/Lee_Adler/status/252465876220137472/photo/1/large

Hilarious!
written by Paul, October 01, 2012 10:09
"The credit was not going to maintain house prices at a permanently inflated level unless the government was prepared to go the route of a house price support program."

So the federal government never had a "house price support program" before? Really?

What exactly are Fannie and Freddie, not to mention the FHA? What exactly is the home mortgage interest deduction for federal income taxes or the deduction for local real estate taxes?

God forbid that the federal government should have a "house price support program" because that would just be dirty Keynesian economics!!! You know, trying to increase the propensity to consume in a recession when the true path for all conservative economists is to let prices "hit the bottom" as Romney said.
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written by skeptonomist, October 01, 2012 11:58
Hopefully the first-time buyers brought into the market by the program were not flippers expecting to cash out in a year or two on price gains, so a temporary paper loss would not be important to them. They got a tax credit immediately, which was what was supposed to stimulate the economy - immediately. As Paul says, waiting for all markets to hit bottom before applying stimulus would not really be good Keynesian economics.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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