Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.
The bleak report from the Commerce Department is the first sign of how the end of federal tax credits could weigh on the nation’s housing market.
The credits expired April 30. That’s when a new-home buyer would have had to sign a contract to qualify.
“We fear that the appetite to buy a home has disappeared alongside the tax credit,” Paul Dales, U.S. economist with Capital Economics,” wrote in a note. “After all, unemployment remains high, job security is low and credit conditions are tight.”
Gosh, if I didn’t know any better I’d say reducing taxes helps the economy…
Don’t you see? Following the Progressive/Socialist line of thought this little backsliding in housing is clear proof that we must enthusiastically and persistently continue the stimulus without thought to the cost! This Keynesian approach will work every bit as wonderfully as continually priming a running well pump that is trying to lift water from a dry hole. Water comes out of the pump so long as you keep priming it. Of course, the act of priming a pump results in spillage and loss of a decent percentage of the priming water water so the analogy is a pretty good match with the folly of federal stimulus.
Elections do, indeed, have consequences.
I think this has more to do with people making sure they got their home purchase in while the stimulus was available than it does with whether the housing market will recover. It will be four or five months before people who weren’t in the market while the stimulus was set to expire are entering the market again. My big concern is that Congress will start another stimulus package based on a couple of months’ news.
We’ve seen a similar phenomenon in the auto industry (and other industries) for many years: “Incentives” like this don’t so much grow the market as pull sales forward from the future. Sooner or later you’ve got to deal with the root causes rather than force the market to behave as you think you’d like.