Tax Credit – How Not to Fix the Housing Crisis
Can we discuss the homebuyer tax credit for a second? You know which one I’m talking about. The one where you just had to buy a house and not have the income of a bank CEO and the government would send you a check for like eight grand. That one. Can we talk about it real quick?
Here’s the thing, when it was introduced, of course all of us Realtor-types were like, RAD. The market is exceedingly craptastic. This will make people want to buy houses! We might actually be able to scrape together a living wage this year! I might be able to quit my night job waitressing at Denny’s!
And my buyers (many of whom were already planning to buy) were like, Shut up! That is so great! Now I can buy a house that needs carpet and paint replacing and actually have money to do it. Or, Lookee here! Now I can pay down some of my debt after I buy the house and it will be easier to make my monthly mortgage payment, whee!
There was a lot of general celebrating over this idea; is the point. I think we all felt like the only downside would be the debt the government would incur over the whole thing (which, granted, was a LOT. Like in the bajizillions, I’m pretty sure). But hey, better them than us, right? Sure, the government is swimming in a sea of metaphorical debt, but hello, we, the Tom, Dick and Harry’s of the US are drowning in actual debt. I have this feeling creditors don’t track down the cell number of the US government and call it every evening at the dinner hour from different phones until it is tricked into picking up and then berate the government for being a deadbeat.
I’m pretty sure the government had its heart in the right place about this one, too. I think the idea was: Hey, the housing market has collapsed and left all these poor souls (real estate professionals and homeowners alike) in the burning wreckage. We should probably try to put out the fire. This tax credit thing looks like water. It’s clear and fluid-looking. It will give people a financial incentive to buy again, which will stimulate the market and will cause prices to stop free-falling. It can’t really lose, right? It totally looks like water. And we’ve got to do something. Anything is better than nothing.
Unfortunately, that tax credit totally wasn’t water. It was vodka with a twist of lemon and we all got high on the fumes as the wreckage we were standing in burst back into flames.
Here’s what happened:
1. People got excited and bought houses! They wanted to ‘take advantage’ of the credit, so some of them did it before they were really ready. They didn’t think it through as clearly as they might have otherwise.
2. The market free-fall slowed and seemed to finally come to a stop. Everyone talked about a ‘leveling-out’ of prices. We all started to take a deep breath in relief that the worst was over.
3. The tax credit expired and was finally not renewed again. Then things got really, really quiet. If you ask just about any agent in the Metro-Phoenix area about the summer of 2010 they get a crazed look in their eye. It was the summer we learned you actually can live on ramen noodles and spam. It was the summer I panicked and began interviewing for jobs outside of real estate (it was also the summer I learned I’m no longer qualified for anything that pays upwards of $7.50/hour).
4. Houses had to sell, though, and to make it happen, prices had to drop again. And they continue to drop to this day.
Here’s what’s just starting to happen now:
People who bought in 2009 and got the tax credit had things happen in their lives. They’ve gotten divorced or had a job transfer out of state. Now they need to get out of their homes. But prices have dropped, so they have negative equity in addition to emotional trauma from their divorce or moving expenses. Plus, they have a nice little additional present from the government: they have to pay that tax credit back. The tax credit stipulated that the buyer must own and live in the house at least three years to keep the money. They’re lucky they didn’t get pantsed on the way out the door.
That tax credit was a Trojan horse filled with tiny little IRS agents armed with samurai swords and bows and arrows. We thought it was a present and wheeled it into our homes only to have it explode in a flurry of violence and pain (some of the tiny IRS also had lemons they juiced over our cuts from the itty bitty weapons).
My point in all of this (beyond endless metaphors about the tax credit being a wolf in sheep’s clothing, I could go on all day) is not that I knew this was going to happen. I think I’ve clearly established that I am not a soothsayer in any way. No, my point is only that we all need to recognize this for what it was: A total failure of an attempt to help a situation that probably can only be solved by time.
Let’s not do this again, ok, People? Let’s not throw good money after bad. Let’s stop artificially inflating things. It only ends up popping again in a giant mess we have to clean up. It’s not pretty. (Starlets could probably learn this lesson too.)