HUD is denying that there is any talk of extending the home buyer’s credit after a spokesman left the matter up in the air during a CNN interview last week. Today, a spokesman told CNBC that “there are no discussions underway to revive the tax credit.”
This is good news. Prices are depressed because the supply of homes exceeds the demand. The tax credit helps shuffle people around among the existing homes, but it does nothing to increase household formations. It does, however, send distorted messages to people trying to evaluate the market.
As Calculated Risk puts it:
The problem in housing is there is too much supply (at the current price). Incentivizing people to buy existing homes just shuffles households around – it does NOT reduce the overall supply unless the buyer is moving out of their parent’s basement. I doubt that happened very often. Note: It is important to remember that rental units are part of the overall supply, so moving people from a rental unit to homeownership doesn’t help.
And if the tax credit leads to more new home sales – that ADDS to the excess supply. And that makes the situation WORSE.
It would be far better for housing and the economy to announce “There will be no further housing tax credits.”