Thursday, November 19, 2009

Churning The Market

The numbers for housing starts in October are in, and the housing market “green shoots” seem to be suffering from a slight case of over-optimism. Expectations ranged from a high estimate of 630,000 to a low of 570,000, and the actual number was 529,000.

The government is doing everything it can to reinflate the housing bubble, lobbying itself to extend the $8000 home buyer’s tax credit, extending FHA loans with as little as 3.5% down payment and allowing the tax credit to be used as down payment, and keeping the bank lending rate at zero which keeps mortgage rates at historic low levels.

Congress is also considering extending the tax credit to buyers who are not first-time buyers, and it has recently created a $6500 tax credit for people who already own a home and are buying a different one.

The tax credit for first-time buyers can be defended, albeit questionably, as “encouraging home ownership,” but extending it to prior owners and creating a tax break for present owners to buy different homes is pure pork; tax incentives which do nothing but “churn” the housing market and stimulate sales for the purpose of creating artificial economic growth.

This is part of the mechanism whereby we see an increase in the GDP and upturns in the stock market, both of which are beneficial for Wall Street, while unemployment continues to climb and Main Street suffers.

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