June 4, 2010
Pay Shift It Forward
"The federal homebuyer tax credit shifted demand in the U.S. housing market [forward] without having a lasting impact on prices, according to Douglas Duncan, chief economist of Fannie Mae, the largest mortgage financier."
First Published: June 4, 2010 10:30 AM
Comments from "Plugged In" Readers
although I agree with this sentiment and have stated as such for many months now, I would still point out that this is not a fait accompli.
the data doesn't yet prove that demand was simply pulled forward without appreciable sustained house price improvement, it only strongly suggests/supports that idea.
For instance, the fact that applications for mortgages collapsed immediately after the tax credit expired is compelling... but we need to wait a few months to see whether or not there is continued improvement/support of home prices.
Thus, although I agree with Mr. Duncan, his quote erroneously insinuates that the data is clear about no lasting price improvement. In time we'll know (4-6 months).
infuriorating isn't it? but this is why I've said for about 3 years now "watching this downturn will be like watching the paint dry on a painting of grass growing".
Credit crises take many years (and sometimes decades) to resolve. we're only 2 years into the downturn. we have years to go left. this is why my optimistic forecast has always been continued housing pressure through Dec 2011. I still maintain that forecast (and if anything I'd push it later as opposed to earlier, given the wasteful govt intervention to this point in housing that has delayed but not averted the correction).
All that said: it is nice to see people once in a while discussing that our economy is very sick with severe structural problems, instead of the cheerleading you see from Government and CNBC.
Posted by: ex SF-er at June 4, 2010 10:43 AM
^Kind of hard to keep cheerleading when the Dow slumps under 10,000 and the Euro is down to 1.20.
Not that it won't stop the WSJ and NYT from trying, though!
I can tell you that the business environment is getting uglier by the day, after stabilizing for the past couple of months. I guess trillions of dollars of porkulus doesn't go as far as it used to.
Oh well. Now that we've tried to solve a debt problem with lots more debt, and that didn't work, it's time for the next leg down so that the structural problems can actually work their way out of the system.
Structural problem numero uno: real estate prices that force wages to stay out of whack. That's why you see HP, Cisco, Oracle, etc. laying off thousands.
It will just keep happening until real estate prices fall. There is no equilibrium in an economy in which housing prices are artificially inflated, because it provides too much of an incentive to find ways to cut jobs or move them out of the area, in which case real estate prices fall anyways as a result. High real estate prices make it impossible for employers to pay people a wage that allows them to live well, so you just move to an area that allows that or you automate the job.
However, at that point, you have serious structural problems because the jobs are now gone! When the artificial price supports are removed, you get a double whammy: no artificial stimulus and no jobs. That's a recipe for catastrophe.
Posted by: tipster at June 4, 2010 11:07 AM
So I forgot the economist who said the best and fastest way to get money into the hands of people to spend would be to fly over major metropolitan areas and dump it out of low flying planes. Actually this might have jump started the economy as opposed to the stimulus packages to date. Funding infrastructure projects is a grand idea, but the dollars go into the hands of contractors and their subs ...but too few hands! Its about velocity of money...it has to be hot and fast. My crystal ball says equity markets up to a August 26ish high then slow down for the next 18 months. Economic deflation for up to three years. Sorry I dont wish this, just have a gut feeling.
Posted by: cash from the sky at June 4, 2010 11:18 AM
are you being facetious? that was our very own "helicopter" Ben Bernanke.
Posted by: anon at June 4, 2010 12:27 PM
Of the 787 billion dollar stimulus, 512 billion was tax cuts and entitlement, leaving 275 billion in the "contracts, grants and loans" category. That's a lot of money, but the vast majority of this stimulus package went directly to people, much of it related to tax credits (only 50% of households that filed this year payed any income tax), unemployment extensions, and housing credits
Posted by: tax at June 4, 2010 1:13 PM
There's a better breakdown of ARRA at Wikipedia:
Note that $70B went to the AMT fix which would have happened with or without ARRA, so that shouldn't be considered. Around $51B went to corporate tax breaks.
Posted by: sfrenegade at June 4, 2010 1:49 PM
Cash, I think you are spot on. Mild rebound over the summer. Bottom falls out in the fall.
At some point we have to let it happen and get it over with.
Posted by: Eric at June 4, 2010 8:31 PM