The First Time Homebuyer Tax Credit seems like a good idea because everyone likes free money. But, we are at a time when we must spend carefully as a nation. All the money to fund this tax credit is borrowed, from us. So, are we getting our money’s worth? Could the same money be spent elsewhere with a greater return to our economy? I have not read any statistics about the effectiveness of the first time homebuyer tax credit, good or bad. Although, home prices have been lifted in many markets, somewhat, in the first time home buyer price point, this summer. Perhaps, this points to a positive impact of this tax credit. But, I do not perceive any kind of multiplier effect from this credit. That tax credit is "parked" in the cost of a home. It is not creating more commerce.
One concern that I had from the inception was that the tax credit could not be used at the time of sale. This limited the "stimulus" effect. FHA did allow some kind of loan so that the credit could be borrowed (we need to start to shudder when the word “borrow” comes into the conversation.) in advance and used for closing costs. I am coming to the opinion that the tax credit money could be spent more effectively elsewhere to improve our economy. For example, how about $15,000 additional credit for better insulation, solar or wind power. This could make jobs, which is an important part of the solution to our economic woes. It could reduce our dependency on foreign energy which sends our money out of the country to buy foreign oil. These are significant and durable benefits that continue into the future. Lesser amounts of credit could be meaningful for real water and energy conservation retrofitting for all property owners and even tenants. For example, 60 watt light bulbs could be replaced with 4.5 watt LED lighting that emits more light and less heat. It has a small cost with an enduring payback of reduced energy consumption. If this simple thing would save $25.00 a month in electricity, that money becomes available EVERY month for commerce. It has an enduring, positive, economic multiplier effect.
We saw Bush's $600 checks to everyone for stimulus. I called it the "Chinese Television Manufacturers Stimulus Package" because so many people used the money to buy new, foreign made, televisions. No new American economic activity. It seemed most of that money went to buy stuff from outside the US or essentials that were consumed, like food. It had no durable, long lasting impact. “Cash for clunkers” just raised the cost of new cars by $4,500, so no net benefit to consumers or the economy. Pouring cash onto financial institutions has not been attracting capital, for future investment, to them. Banks just look better with the government welfare cash (bailout funds) on their books. It has not repaired the confidence in financial institutions to attract investment in economic growth in the future. It has not created new credit (which might be good).
The source of funds for the tax credits is more Federal Debt (borrowed money!). We already have more debt than we can afford as a nation. So, if we are going to borrow more money for tax credits, we should expect a significant multiplier effect in economic activity. Although I would not support this, a tax credit to buy new homes would direct the benefit to construction jobs. This could increase the demand for new floor coverings and appliances. And so on.
In general, most of the economic stimulus has been casting fish to large corporations and some crumbs to individuals without teaching anyone to fish for themselves. I have described these "fixes" as putting out a fire by raining cash on them. No changes have been made to prevent future problems. Our policy makers pursue the same corporate welfare to hide problems; we have the same financial institution bosses, and no regulation to stymie a repeat of this colossal calamity. If we pursue the same policies with the same people, we can expect the same results. No one has learned their lessons yet.
Mark Goldman, CMPS is a mortgage broker in San Diego with Cobalt Financial Corp. and teaches Real Estate Investment at San Diego State University.