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First-time home buyer tax credit

Cody_Franklin
Posts: 9,483
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5/22/2010 3:05:40 PM
Posted: 6 years ago
I've not taken a great number of economics courses in my time, and the literature on this concept is so wrapped up in specialized housing market jargon that it's a bit difficult to understand. So, could someone explain to me precisely why the credit is a bad idea?

From what I can discern, it lets banks sell foreclosed houses at crazy-sh*t prices, make bad loans in ignorance of the value of the collateral, and there's a huge increase in the housing supply in the face of an artificial demand. It seems like it just expands the duration of the financial trouble.
Ragnar_Rahl
Posts: 19,297
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5/22/2010 8:58:06 PM
Posted: 6 years ago
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:
I've not taken a great number of economics courses in my time, and the literature on this concept is so wrapped up in specialized housing market jargon that it's a bit difficult to understand. So, could someone explain to me precisely why the credit is a bad idea?

From what I can discern, it lets banks sell foreclosed houses at crazy-sh*t prices

Crazy ****= different from what it's worth. Also, that would be better achieved by a credit for all buyers, not just first-timers, assuming it was desirable, which it isn't.

make bad loans in ignorance of the value of the collateral, and there's a huge increase in the housing supply in the face of an artificial demand. It seems like it just expands the duration of the financial trouble.
Oh I get it you're answering your own question. My bad :P.

But it doesn't just "expand the duration." It might even shorten the duration-- it also shortens the duration of healthy economy till the NEXT financial trouble, and makes said trouble worse, considering how artificial financing of homebuying was one of the major causes of the recession.

In additionubsidizing homebuying--results in higher taxes for everyone else assuming the same amount of spending, and discourages a mobile workforce.
It came to be at its height. It was commanded to command. It was a capital before its first stone was laid. It was a monument to the spirit of man.
Cody_Franklin
Posts: 9,483
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5/22/2010 9:13:21 PM
Posted: 6 years ago
At 5/22/2010 8:58:06 PM, Ragnar_Rahl wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:
I've not taken a great number of economics courses in my time, and the literature on this concept is so wrapped up in specialized housing market jargon that it's a bit difficult to understand. So, could someone explain to me precisely why the credit is a bad idea?

From what I can discern, it lets banks sell foreclosed houses at crazy-sh*t prices

Crazy ****= different from what it's worth. Also, that would be better achieved by a credit for all buyers, not just first-timers, assuming it was desirable, which it isn't.

make bad loans in ignorance of the value of the collateral, and there's a huge increase in the housing supply in the face of an artificial demand. It seems like it just expands the duration of the financial trouble.
Oh I get it you're answering your own question. My bad :P.

Not really. Those were just the objections I was able to come up with.

But it doesn't just "expand the duration." It might even shorten the duration-- it also shortens the duration of healthy economy till the NEXT financial trouble

Is that because economic prosperity is based entirely on the solidity of the government's ability to absorb really terrible economic decisions?

and makes said trouble worse, considering how artificial financing of homebuying was one of the major causes of the recession.

That makes sense.

In additionubsidizing homebuying--results in higher taxes for everyone else assuming the same amount of spending

I've actually read that the credit doesn't expand a person's spending power whatsoever.

and discourages a mobile workforce.

What do you mean by that?
Ragnar_Rahl
Posts: 19,297
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5/22/2010 9:31:35 PM
Posted: 6 years ago
At 5/22/2010 9:13:21 PM, Cody_Franklin wrote:
At 5/22/2010 8:58:06 PM, Ragnar_Rahl wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:
I've not taken a great number of economics courses in my time, and the literature on this concept is so wrapped up in specialized housing market jargon that it's a bit difficult to understand. So, could someone explain to me precisely why the credit is a bad idea?

From what I can discern, it lets banks sell foreclosed houses at crazy-sh*t prices

Crazy ****= different from what it's worth. Also, that would be better achieved by a credit for all buyers, not just first-timers, assuming it was desirable, which it isn't.


make bad loans in ignorance of the value of the collateral, and there's a huge increase in the housing supply in the face of an artificial demand. It seems like it just expands the duration of the financial trouble.
Oh I get it you're answering your own question. My bad :P.

Not really. Those were just the objections I was able to come up with.

But it doesn't just "expand the duration." It might even shorten the duration-- it also shortens the duration of healthy economy till the NEXT financial trouble

Is that because economic prosperity is based entirely on the solidity of the government's ability to absorb really terrible economic decisions?
We're still prosperous even in a depression compared to most countries, the problem of stability is, in a modern economy, significantly dependent on maintaining a given price of money (interest rate). The government tends to be the main lender, but that isn't inevitable of course-- the point is, recessions happen when lending (an increase of which is a result of subsidizing the purchase of goods that are almost never paid for in cash, almost always in mortgages) catches up to itself, as it eventually will in any model that attempts to make fractional reserve permanent.

In additionubsidizing homebuying--results in higher taxes for everyone else assuming the same amount of spending

I've actually read that the credit doesn't expand a person's spending power whatsoever.
That doesn't make any sense-- they are taxed less, consequently, they have more money, at least in the immediate short term.


and discourages a mobile workforce.

What do you mean by that?
People who invest in homes, unlike, say, renters who invest money in common stock, cannot just up and move whenever a higher paying job (i.e. a job that has more use for them, or it wouldn't pay that much), opens up. They have to try to sell it, which could take years, which means the company probably on average hires someone less productive to avoid those years of zero productivity that would be less if more people rented. Certainly, homeowning also has advantages that renting does not, but the proper way to measure the value of those advantages against mobility is-- an undistorted marketplace.
It came to be at its height. It was commanded to command. It was a capital before its first stone was laid. It was a monument to the spirit of man.
Xer
Posts: 7,776
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5/22/2010 9:41:20 PM
Posted: 6 years ago
It's inflating the bubble. The tax credit encourages those who can't afford houses to buy houses anyway. These people will later default, the lending institution will be left with the payments, and the housing crisis will just become sharper. Government artificially raising the demand for houses doesn't help the housing crisis.

It's all about malinvestments, yo. The gunverment is setting the stage.
innomen
Posts: 10,052
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5/23/2010 3:45:51 AM
Posted: 6 years ago
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:
I've not taken a great number of economics courses in my time, and the literature on this concept is so wrapped up in specialized housing market jargon that it's a bit difficult to understand. So, could someone explain to me precisely why the credit is a bad idea?

From what I can discern, it lets banks sell foreclosed houses at crazy-sh*t prices, make bad loans in ignorance of the value of the collateral, and there's a huge increase in the housing supply in the face of an artificial demand. It seems like it just expands the duration of the financial trouble.

I'm pretty sure that's not accurate.
Cody_Franklin
Posts: 9,483
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5/23/2010 8:56:21 AM
Posted: 6 years ago
At 5/23/2010 3:45:51 AM, innomen wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:
I've not taken a great number of economics courses in my time, and the literature on this concept is so wrapped up in specialized housing market jargon that it's a bit difficult to understand. So, could someone explain to me precisely why the credit is a bad idea?

From what I can discern, it lets banks sell foreclosed houses at crazy-sh*t prices, make bad loans in ignorance of the value of the collateral, and there's a huge increase in the housing supply in the face of an artificial demand. It seems like it just expands the duration of the financial trouble.

I'm pretty sure that's not accurate.

I'm pretty sure it is. It seems we're at an impasse. Care to explain?
innomen
Posts: 10,052
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5/23/2010 9:34:46 AM
Posted: 6 years ago
At 5/23/2010 8:56:21 AM, Cody_Franklin wrote:
At 5/23/2010 3:45:51 AM, innomen wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:
I've not taken a great number of economics courses in my time, and the literature on this concept is so wrapped up in specialized housing market jargon that it's a bit difficult to understand. So, could someone explain to me precisely why the credit is a bad idea?

From what I can discern, it lets banks sell foreclosed houses at crazy-sh*t prices, make bad loans in ignorance of the value of the collateral, and there's a huge increase in the housing supply in the face of an artificial demand. It seems like it just expands the duration of the financial trouble.

I'm pretty sure that's not accurate.

I'm pretty sure it is. It seems we're at an impasse. Care to explain?

It makes no distinction on the house that is being purchased other than its value is less than $800K. Your comment of letting a bank sell a property at a crazy low price is not part of the program. It's a simple tax incentive to help generate home sales, and "stimulate the economy".
Ragnar_Rahl
Posts: 19,297
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5/23/2010 9:42:54 AM
Posted: 6 years ago
At 5/23/2010 9:34:46 AM, innomen wrote:
At 5/23/2010 8:56:21 AM, Cody_Franklin wrote:
At 5/23/2010 3:45:51 AM, innomen wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:
I've not taken a great number of economics courses in my time, and the literature on this concept is so wrapped up in specialized housing market jargon that it's a bit difficult to understand. So, could someone explain to me precisely why the credit is a bad idea?

From what I can discern, it lets banks sell foreclosed houses at crazy-sh*t prices, make bad loans in ignorance of the value of the collateral, and there's a huge increase in the housing supply in the face of an artificial demand. It seems like it just expands the duration of the financial trouble.

I'm pretty sure that's not accurate.

I'm pretty sure it is. It seems we're at an impasse. Care to explain?

It makes no distinction on the house that is being purchased other than its value is less than $800K. Your comment of letting a bank sell a property at a crazy low price is not part of the program. It's a simple tax incentive to help generate home sales
FACEPALM.JPG.
Obviously, if more people are buying homes, demand is up. If demand is up, prices are up.

and "stimulate the economy".
The only concrete referent of which: Higher prices.
It came to be at its height. It was commanded to command. It was a capital before its first stone was laid. It was a monument to the spirit of man.
innomen
Posts: 10,052
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5/23/2010 9:46:36 AM
Posted: 6 years ago
At 5/23/2010 9:42:54 AM, Ragnar_Rahl wrote:

FACEPALM.JPG.
Obviously, if more people are buying homes, demand is up. If demand is up, prices are up.

and "stimulate the economy".
The only concrete referent of which: Higher prices.

Not really, the thinking is that new home construction will increase as demand increases, with that comes a great many other trickles toward the economy like appliances and other related new home expenses.
mongeese
Posts: 5,387
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5/23/2010 9:47:38 AM
Posted: 6 years ago
At 5/23/2010 9:46:36 AM, innomen wrote:
At 5/23/2010 9:42:54 AM, Ragnar_Rahl wrote:

FACEPALM.JPG.
Obviously, if more people are buying homes, demand is up. If demand is up, prices are up.

and "stimulate the economy".
The only concrete referent of which: Higher prices.

Not really, the thinking is that new home construction will increase as demand increases, with that comes a great many other trickles toward the economy like appliances and other related new home expenses.

That's where the zoning laws come in and restrict any growth in supply.
Ragnar_Rahl
Posts: 19,297
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5/23/2010 9:47:57 AM
Posted: 6 years ago
At 5/23/2010 9:46:36 AM, innomen wrote:
At 5/23/2010 9:42:54 AM, Ragnar_Rahl wrote:

FACEPALM.JPG.
Obviously, if more people are buying homes, demand is up. If demand is up, prices are up.

and "stimulate the economy".
The only concrete referent of which: Higher prices.

Not really, the thinking is that new home construction will increase as demand increases
Only if returns, i.e., higher prices, are expected.

with that comes a great many other trickles toward the economy like appliances and other related new home expenses.
I.e. higher moving prices for those.
It came to be at its height. It was commanded to command. It was a capital before its first stone was laid. It was a monument to the spirit of man.
innomen
Posts: 10,052
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5/23/2010 9:57:47 AM
Posted: 6 years ago
At 5/23/2010 9:47:57 AM, Ragnar_Rahl wrote:
At 5/23/2010 9:46:36 AM, innomen wrote:
At 5/23/2010 9:42:54 AM, Ragnar_Rahl wrote:

FACEPALM.JPG.
Obviously, if more people are buying homes, demand is up. If demand is up, prices are up.

and "stimulate the economy".
The only concrete referent of which: Higher prices.

Not really, the thinking is that new home construction will increase as demand increases
Only if returns, i.e., higher prices, are expected.

Well kind of. If the supply of inventory is sufficiently low, and the prices are high enough where the new construction cost is lower than the price of the house, then a new house will be built.

with that comes a great many other trickles toward the economy like appliances and other related new home expenses.
I.e. higher moving prices for those.

Moving prices would depend on the saturation of the market with the number of movers available.
Cody_Franklin
Posts: 9,483
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5/23/2010 10:02:32 AM
Posted: 6 years ago
At 5/23/2010 9:34:46 AM, innomen wrote:
At 5/23/2010 8:56:21 AM, Cody_Franklin wrote:
At 5/23/2010 3:45:51 AM, innomen wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:
I've not taken a great number of economics courses in my time, and the literature on this concept is so wrapped up in specialized housing market jargon that it's a bit difficult to understand. So, could someone explain to me precisely why the credit is a bad idea?

From what I can discern, it lets banks sell foreclosed houses at crazy-sh*t prices, make bad loans in ignorance of the value of the collateral, and there's a huge increase in the housing supply in the face of an artificial demand. It seems like it just expands the duration of the financial trouble.

I'm pretty sure that's not accurate.

I'm pretty sure it is. It seems we're at an impasse. Care to explain?

It makes no distinction on the house that is being purchased other than its value is less than $800K. Your comment of letting a bank sell a property at a crazy low price is not part of the program. It's a simple tax incentive to help generate home sales, and "stimulate the economy".

Yeah... crazy-sh*t prices = arbitrarily high prices.
innomen
Posts: 10,052
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5/23/2010 10:06:53 AM
Posted: 6 years ago
At 5/23/2010 10:02:32 AM, Cody_Franklin wrote:
At 5/23/2010 9:34:46 AM, innomen wrote:
At 5/23/2010 8:56:21 AM, Cody_Franklin wrote:
At 5/23/2010 3:45:51 AM, innomen wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:

Yeah... crazy-sh*t prices = arbitrarily high prices.

That's just not how the market works.
Cody_Franklin
Posts: 9,483
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5/23/2010 10:35:01 AM
Posted: 6 years ago
At 5/23/2010 10:06:53 AM, innomen wrote:
At 5/23/2010 10:02:32 AM, Cody_Franklin wrote:
At 5/23/2010 9:34:46 AM, innomen wrote:
At 5/23/2010 8:56:21 AM, Cody_Franklin wrote:
At 5/23/2010 3:45:51 AM, innomen wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:

Yeah... crazy-sh*t prices = arbitrarily high prices.

That's just not how the market works.

That's how a mixed economy works.
Ragnar_Rahl
Posts: 19,297
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5/23/2010 10:47:52 AM
Posted: 6 years ago
At 5/23/2010 9:57:47 AM, innomen wrote:
At 5/23/2010 9:47:57 AM, Ragnar_Rahl wrote:
At 5/23/2010 9:46:36 AM, innomen wrote:
At 5/23/2010 9:42:54 AM, Ragnar_Rahl wrote:

FACEPALM.JPG.
Obviously, if more people are buying homes, demand is up. If demand is up, prices are up.

and "stimulate the economy".
The only concrete referent of which: Higher prices.

Not really, the thinking is that new home construction will increase as demand increases
Only if returns, i.e., higher prices, are expected.

Well kind of. If the supply of inventory is sufficiently low, and the prices are high enough where the new construction cost is lower than the price of the house, then a new house will be built.

with that comes a great many other trickles toward the economy like appliances and other related new home expenses.
I.e. higher moving prices for those.

Moving prices would depend on the saturation of the market with the number of movers available.
You mean the very thing the policy is designed to increase. Lol.
It came to be at its height. It was commanded to command. It was a capital before its first stone was laid. It was a monument to the spirit of man.
innomen
Posts: 10,052
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5/23/2010 11:32:31 AM
Posted: 6 years ago
At 5/23/2010 10:35:01 AM, Cody_Franklin wrote:
At 5/23/2010 10:06:53 AM, innomen wrote:
At 5/23/2010 10:02:32 AM, Cody_Franklin wrote:
At 5/23/2010 9:34:46 AM, innomen wrote:
At 5/23/2010 8:56:21 AM, Cody_Franklin wrote:
At 5/23/2010 3:45:51 AM, innomen wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:

Yeah... crazy-sh*t prices = arbitrarily high prices.

That's just not how the market works.

That's how a mixed economy works.

No, wrong. In a mixed or in a completely capitalist economy there are no arbitrarily priced houses.
Cody_Franklin
Posts: 9,483
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5/23/2010 12:32:48 PM
Posted: 6 years ago
At 5/23/2010 11:32:31 AM, innomen wrote:
At 5/23/2010 10:35:01 AM, Cody_Franklin wrote:
At 5/23/2010 10:06:53 AM, innomen wrote:
At 5/23/2010 10:02:32 AM, Cody_Franklin wrote:
At 5/23/2010 9:34:46 AM, innomen wrote:
At 5/23/2010 8:56:21 AM, Cody_Franklin wrote:
At 5/23/2010 3:45:51 AM, innomen wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:

Yeah... crazy-sh*t prices = arbitrarily high prices.

That's just not how the market works.

That's how a mixed economy works.

No, wrong. In a mixed or in a completely capitalist economy there are no arbitrarily priced houses.

A mixed economy is hardly similar to a free economy.

Mixed economy = mixture of free exchange and government control.

As a result of government interference, banks are currently in possession of a LOT of foreclosed property. The tax credit allows banks to get rid of that property at higher prices, because the credit only helps people to make a down payment, which can expand their virtual purchasing power by a LOT, even if they don't have the money to pay off the house; additionally, they can loan out money to people against those higher prices; eventually, the massive number of people who bought homes which they could not afford will have their homes foreclosed on, the loans will go sour, and the whole problem is perpetuated.
innomen
Posts: 10,052
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5/23/2010 12:53:59 PM
Posted: 6 years ago
At 5/23/2010 12:32:48 PM, Cody_Franklin wrote:
At 5/23/2010 11:32:31 AM, innomen wrote:
At 5/23/2010 10:35:01 AM, Cody_Franklin wrote:
At 5/23/2010 10:06:53 AM, innomen wrote:
At 5/23/2010 10:02:32 AM, Cody_Franklin wrote:
At 5/23/2010 9:34:46 AM, innomen wrote:
At 5/23/2010 8:56:21 AM, Cody_Franklin wrote:
At 5/23/2010 3:45:51 AM, innomen wrote:
At 5/22/2010 3:05:40 PM, Cody_Franklin wrote:

Yeah... crazy-sh*t prices = arbitrarily high prices.

That's just not how the market works.

That's how a mixed economy works.

No, wrong. In a mixed or in a completely capitalist economy there are no arbitrarily priced houses.

A mixed economy is hardly similar to a free economy.

Mixed economy = mixture of free exchange and government control.

As a result of government interference, banks are currently in possession of a LOT of foreclosed property. The tax credit allows banks to get rid of that property at higher prices, because the credit only helps people to make a down payment,

So how does that work? Hmmmm? You buy the house, and then when you file your taxes you get the credit and then you go into a time machine and put it on your down payment?

which can expand their virtual purchasing power by a LOT, even if they don't have the money to pay off the house
What are you talking about? Have you ever purchased a house?

; additionally, they can loan out money to people against those higher prices; eventually, the massive number of people who bought homes which they could not afford will have their homes foreclosed on, the loans will go sour, and the whole problem is perpetuated.

Okay, so here's how it works. A bank forecloses on a property (the last thing they want to do), at which point they assume the outstanding debt, pay the taxes, and arrange for the sale etc. The property has an exact cost to the bank, and if the value of the property went down (which ACTUALLY IS REALITY), and the outstanding debt is high their need to sell is high because their unwanted inventory of this debt on their books is increasing. Meanwhile, due to the banking crisis and the causes of bad loans, mortgages are being scrutinized and greater difficulty in qualifying for a loan becomes imposed. You have a high inventory with highly motivated sellers (the banks) and a reduced customer base due to the difficulty in obtaining mortgages. All of this will not result in arbitrarily crazy high prices. Nothing in any of this is arbitrary. The market is weak and the prices are low. The tax credit is nice, but i hardly think it impacts many sales at all, and it certainly doesn't impact the market price by making it arbitrarily high (not even sure what that phrase means).