Remember That Truism About Free Lunches?...House Purchase Tax Credits

As OS noted before, if you pull demand forward now, it caves in later.

With the expiration of all those car-dealer-like 'incentives' from Congress, e.g. 'Buy a house and we'll throw money at you.', demand has made a dramatic decline, and prices are not far behind. OS's good buddy the realtor, who is one hell of a great realtor, now finds himself with plenty of time for golf. 'Cuz ain't nobody buyin' no houses.

Don't take OS' word for it--he's just a know-nuthin' rube who don't know what's good fer 'im, cuz he harbors suspicions that ThePeopleInChargeOfSuchThings are clueless, and completely uninterested in learning. Hey, they got doctorates. They must be smart!

This from today's Economist:

THE storm clouds have been gathering for months. Almost immediately after the expiration of the government's tax credit for homebuyers, it became clear that American housing market stability had been remarkably dependent on the generous subsidy. Data on mortgage applications for purchase and new and existing home sales attested to a striking contraction in housing market activity. And eventually prices began to follow. In July, both of the national home price indexes published by S&P/Case-Shiller ticked downward after rising for much of the previous year. Data released this morning indicated that declines accelerated in August.

OS's other buddies who used to build all the houses they could say grace over are now scrambling for remodel and maintenance jobs. One hasn't built a house in two years. He'll be painting OS's old pickup this winter, and the other will be doing some overdue work here on the house. The inventory of really fine houses on the market stretches for months, and there's a lot more mediocre and unsalable inventory behind that.

And what about those 'lucky' homebuyers who bought a house at a price inflated by a tax subsidy that pulled them forward into the purchase? The tax credit is a one-time hit on the crack pipe. The mortgage lasts thirty years, and the house will be well underwater this time next year. The job goes away, or relocates, or, or, or...

There is no free lunch. Never has been. Never will be. Because math is math. Only when the free market freely sorts out valuation will a recovery begin in housing. Until then, buyers are taking out thirty-year mortgages on a crap shoot. Appetite for risk, anyone?

We have a government full of people who either lied or were self-deluded, claiming they could create The Free Lunch, like the alchemists of old creating gold from straw, or the Bernie Madoffs of today, creating 10% returns for years on end, when everyone else was scrambling for 6%.

As OS's British friends say: This will end in tears.

If You Pull Demand Forward....It Falls Down Later: July House Sale Numbers

It's breathtaking to watch ThePeopleInChargeOfSuchThings commit such obvious knucklehead mistakes.

If you bribe people 8K to buy houses, and then stop bribing them, they'll stop buying.

This is a bit like watching a train wreck from a distance. One can jump up and down, wave the arms and scream, but those two locomotives will meet on the same track, nonetheless.

This is about the culture, which shapes the economy. This approach to human behavior is destructive, of people, of culture, and of the economy at the last.

Heaven have mercy on us.