Due to July's awful numbers for new and existing home sales, people have begun to ask whether Washington should renew the home buyer credit. The credit that expired in April is largely blamed for the epic plummet in home sales for July. So why not just renew it and keep the relatively good times rolling? This is a terrible idea, because another credit will simply continue to prolong the housing market's agony and have little success genuinely creating sales.
This past weekend, Housing and Urban Development Secretary Shaun Donovan indicated that a home buyer credit 3.0 is still being mulled over by policymakers. Reuters reports:
"It's too early to say whether the tax credit will be revived," Donovan said in an interview on CNN's "State of the Union" program. He said the administration would "do everything we can" to stabilize the shaky U.S. housing market.
Little Demand Truly Created
The argument for renewing is pretty simple: if the government continues to provide additional incentive for home sales, then demand will be stronger. Of course, our recent experience with the credit shows that this isn't quite right. While some truly new demand may be created, a lot of the sales just consist of future demand pulled forward by buyers who would have purchased anyway but do so early to collect free money from the government. That's one of the reasons why home sales were so incredibly low for July. Some of the would-be buyers in July probably wouldn't have rushed to purchase a home by the end of April if there hadn't been a credit -- but would have ultimately still bought one.