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Government <> Basic Economic Principles
A few years ago, my wife and I explored buying a different house. This was around when Biden took office when interest rates were still near 3 percent, inflation hadn’t yet ravaged the family budget, and Americans were flush with fed/government cash infusions. The housing market was insane! Homes put up for sale often had 20-30 bids within a week. You had to offer much more than asking price with no contingencies to even have a chance. In economics terms, the demand curve had shifted dramatically while the supply was nowhere close to keeping up. Nowadays, the market isn’t quite so crazy due to much higher interest rates and lesser discretionary income. Still, the market for homes remains hot, especially for the more moderate “starter” homes that middle class Americans can hope to afford.
Here comes government with a new handout which, like the “stimulus” checks, sounds great to those who may receive it. But think about it a little. The government definition of “first-time homebuyer” is much broader than you think, so the vast majority of prospective buyers in the market for starter homes would receive an additional $10,000. So, if you have 10 buyers bidding on a house who all potentially have $10,000 more in their pockets, guess what? Yes, the final selling price of the house is just going to go up $10,000. Therefore, what are they actually gaining? You’re in effect giving a $10K bonus to the seller. Plus, if you also give a $10K tax credit to the seller, that seller is now getting, in effect, $20,000 of “free” money. But it doesn’t stop there–the seller needs to find a new home, but he/she now has $20,000 more to spend on the next house.
End result: housing prices spiral to even more insane levels, and you create incentive for buy-and-sell churning without creating any real value, all while pumping more unearned cash into the economy that will be paid later in higher taxes, debt, and inflation. You would have thought the last few years of skyrocketing prices would have taught us some lessons, but obviously with government involved, results and accountability are never a concern. Only focus group-tested re-election effects matter, which is why Biden might get enough weak-kneed, DC swamp Republicans to go along with it.
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