Congress Just Stopped Housing Sales

The senate just passed a version of the so-called Stimulus Bill that includes a $15,000 tax credit for anyone who buys a house. The House version includes a different but compelling incentive for home purchasers. The final form of the Bill will be ironed out by misguided politicians in the weeks to come.

These kinds of attempts at price fixing are always disastrous. The government continues to overtly attempt to prop up housing values at levels that are above equilibrium rates given market conditions. Such efforts will fail and inevitably result in unintended consequences and distortions, but that is another analysis.

I feel badly for Americans who do not possess the wherewithal to understand that a $15,000 tax credit isn’t worth much when you lose $100,000 on a home purchase. Caveat Emptor!

The important thing to understand is that housing sales just stopped. Anyone who can read a newspaper, watch TV or has internet access and is considering a home purchase just put their ambitions on hold. A $15,000 tax credit has value. It is certainly worth waiting for. If you buy a house today you might not qualify for this advantageous treatment. By creating the expectation of a tax savings in the future, Congress just canceled or delayed all pending and contemplated home sales until such a time as the Stimulus Bill is completed.