Recent news indicates that the Obama administration in interested in trying to re-inflate the real estate bubble.
Potential home buyers got an extra incentive Friday when President Barack Obama signed a bill extending a tax credit for first-time buyers and creating a new one for existing homeowners.
The bill gives a $6,400 credit to existing homeowners when they move into a new house and rescues the $8,000 tax credit for first-time home buyers from expiring in November.
This may come as good news to Realtors, but is horrible economic policy. Why do we want to re-inflate the housing industry with tax dollars? The article indicates that extending the tax credit will cost $10.8 billion. Who is going to pay for this credit? Everybody else.
And what happens when the credit expires? According to Jeremy Salemson, CEO of Corporate Investors Mortgage Group; “It (the tax credit expiring) likely would have led to really, sort of, sales dying immediately.” So when the tax credit does expire, sales will slump once again and housing prices will plummet again. And taxpayers will be left paying the tab for this political payoff to the real estate industry. Why on earth do we want to repeat this vicious cycle?