Buyer’s Logic: No Tax Credit, Not Buying
There’s a lot of debate in government and in the blogosphere about what’s happened to the housing market since the homebuyer tax credit expired.
The carnage is clear in the numbers. Since the tax credit ended, home purchases have dropped significantly, despite a recent bump (see graph). As the New York Times reported last weekend in a story about what to do about the housing crisis, sales of new homes are lower than the worst point of the recession of the early 1980s, and mortgage rates at that time were double what they are now.
I’m not really sure where I stand as far as whether the tax credit should return. As I wrote a couple weeks ago, I do believe the Obama administration needs to be more transparent with its plans and make a definitive decision on whether the tax credit will return or not.
What I am confident about is why the tax credit worked, or at least why home sales improved during the credit and are worse now. The argument can be made that it’s better to buy right now; interest rates are lower – still near record lows – and it’s considered a buyer’s market.
But why aren’t buyers in a hurry to buy, as they were during the tax credit?
It comes down to buyer’s logic.
Let’s say you have the choice of getting $8,000 right now, or you can get $10 a week for the next 20 years. I would probably take the $8,000 right now, and I think most Americans would be in the same boat. We’re an instant gratification society. The plans to fix the housing market reflect that.
But if you did the math, the $10 a week would add up to around $10,400.
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