Monday, February 18, 2008

"I'm from the government . . .

By Donald Sensing

... and I'm here to help hurt you."

Senator Lamar Alexander (R-Tenn.) has decided that the federal government should undermine the home-sales market, especially to put the screws to people trying to sell their home (like I am).

Some background: According to the National Association of Realtors,

Existing-home sales are projected at an annual pace of around 4.9 million in the first half of this year, rising notably to 5.8 million in the second half, and totaling 5.60 million for all of 2009.
Get that? Millions of existing homes will be sold this year, and add to them the large number on the market that will not be sold. Furthermore, the NAR estimates that the median price of existing home will fall this year 1.2 percent.

What about new homes?
New-home sales are likely to decline 17.7 percent to 637,000 in 2008 before rising 7.6 percent to 685,000 in 2009. ... The median new-home price is expected to fall 4.3 percent to $236,300 in 2008, and then increase 5.0 percent in 2009.
My point is that the new home market is many times smaller than the existing home market.

So why does Alexander want to financially damage existing home sellers?
January 31st, 2008 - WASHINGTON, D.C. - U.S. Senator Lamar Alexander, R-Tenn., today joined Senator Johnny Isakson, R-Ga., in offering legislation to provide a tax credit for anyone purchasing a newly constructed home, a foreclosed home or a home where foreclosure is pending.

“Providing Americans with this $15,000 tax credit over three years would provide a much-needed boost to the housing market and the economy,” Alexander said. “This incentive will restore confidence in the housing market while preventing a housing disaster by reducing the number of unsold and foreclosed homes on the market that threaten to lessen home values and reduce homeowner equity.”

The legislation, S. 2566, provides a direct tax credit for the purchase of a single-family home in the amount of $5,000 a year for three years on homes purchased between March 1, 2008, and February 28, 2009. Buyers must occupy the homes as their primary residences to be eligible, and purchases of homes from investors or by investors are ineligible. Homes eligible for the tax credit include:

New homes where the building permit was issued and construction began on or before September 1, 2007;
Owner-occupied homes whose first mortgage loan is in default; and
A single-family home that has been foreclosed on and is owned by the mortgagor or its agent.
So the senator and his co-sponsor want to use the power of the US Treasury to punish private home sellers by making the federal government fund their competitors. Under this legislation, the government will be actively harming the financial interests of millions of private sellers in order to boost the fortunes of a few thousand other sellers.

In other words, Lamar wants to give a home shopper 15 large not to buy my house.

He also seems to have forgotten the economists' adage, "That which you subsidize, increases." Lamar's bill has the effect of subsidizing defaults and foreclosures. A mortgage loan can be considered in default, and thus putatively near foreclosure, with as few as two skipped payments. By massively rewarding buyers of such homes the bill incentivizes sellers to let their loans slide to default, especially sellers who have already bought another home and are struggling to make two mortage payments.

Ronald Reagan said, "Government is not the solution, it is the problem." Thanks to Lamar Alexander, Reagan remains correct.

Well, I suppose if existing-home sellers had as big a lobby - and campaign contributions - as the home builders, Lamar might have a different opinion.

Hat tip: Bill Hobbs.

2 comments:

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