Court jester economist for power Mark Zandi tried to pull a fast one by readers of the Washington Post, by actually making the argument, in the face of all evidence to the contrary, that the Obama Administration successfully fixed the foreclosure crisis.
He has to make a mental leap in order to do this, claiming that the state of the housing market in 2012 is directly related to foreclosure mitigation and housing market programs from 2009. Of course, we know the causes of the housing market “recovery” and they have nothing to do with those programs, and everything to do with over-speculation by institutional investors who have bought up massive amounts of foreclosed properties.
Zandi ignores this, and instead makes the completely implausible notion that Administration housing programs did the trick. In particular he singles out the first-time homebuyer’s tax credit, a stimulus program:
Temporary tax credits also enticed home buyers to act sooner rather than later, breaking a self-reinforcing deflationary cycle in the housing market. Prospective buyers had remained on the sidelines, waiting for prices to stop falling, and their reluctance caused prices to drop still more.
The tax credits didn’t spark additional home sales so much as pull sales forward from the future; sales weakened sharply as soon as the credits expired. The credits also were expensive, costing the Treasury tens of billions of dollars, and much of the benefit went to home buyers who would have bought homes anyway. But the tax benefit gave buyers a reason to stop waiting, ending the downdraft in prices.
This is innumerate and ahistorical. As Bill McBride explains, the homebuyer’s tax credit did not end the downturn in prices. Indeed, they continued to decline, almost unabated, from January 2009 until the bottom this year. Zandi knows this and even included all the reasons not to do the tax credit in his analysis. Moreover, the tax credit actually increased the excess supply of housing, because it incentivized the purchase of new homes, leaving existing homes vacant. As much as anything, this accelerated the drop in prices.
The homebuyer’s tax credit was really a waste of money, and an expensive one at that.