Sunday, February 28, 2010

Wait, it didn't really work? You're kidding!

Not that this comes as a surprise but the tax credit offered for buying a new house, didn’t really work according to Alejandro Lazo. It is simply putting off dealing with the housing market. One of the main problems currently is that there too much supply for the demand. The housing market was down in January from December, and had been down in December from November. We all keep hearing that it’s a great time to buy a house, foreclosures are making them cheaper AND you get a tax credit? Well that certainly spells a good deal! Once the tax credit started, people got really excited and went ‘yeah I can afford one of the foreclosure houses, like that house across town that I’ve always liked’, and bought houses. And then the excitement kind of wore off, and then the housing market decreases. This somehow came as a shock from my understanding, which why it was a shock is beyond my understanding. Isn’t this basic supply and demand? I mean really make something cheaper, more people buy the good, then when prices rise back up they buy less of the good? Making the good cheaper in the first place when it’s not actually cheaper is a great way to get screw up demand in the first place.

So what’s the solution? Extend the tax credit. Of course, that will make this whole problem go away. Temporarily. And the temporarily part is the worrisome part really. There’s been this lovely little history where when something is meant to be temporary, and is ‘helpful’ depending on how you look at it, it is no longer temporary. At some point in time the housing market is going to have to start wearing big kids pants and fend for itself. Sadly the extension of the tax credit makes that a little more unlikely. Somewhere down the road I’m sure our children will pay for this, until then it’s all just hoping that this is a one-time extension, not a lifetime extension.

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