For readers who didn't get enough information about the housing market from David Lereah, the widely cited former chief economist of the National Association of Realtors (NAR) and author of the Why the Real Estate Boom Will Not Bust and How You Can Profit from It, the WSJ is again presenting unchallenged assertions from the NAR. Today's wisdom from the NAR is that raising the homebuyers tax credit to $15,000 and applying it to all homebuyers (not just first-time buyers) "could be crucial for permanently righting the housing market again." Okay, the problem in the housing market is a huge excess supply of housing that has led to a record inventory of vacant housing units. How will a tax credit that encourages people to flip homes do anything to absorb an excess supply of housing? It is certainly possible that the extension of the credit will slow and possibly temporarily reverse the decline in house prices (that may have happened in the last few months), but this would just delay the inevitable adjustment process. Once the tax credit is removed, prices will resume their fall. The delay in the adjustment will have led some new homebuyers to purchase homes at bubble-inflated prices. It may also prevent some homeowners from realizing how much equity they have lost. As a result, they may put off plans to adjust their consumption and saving patterns to make up for their lost wealth. Given its counterproductive impact on the housing market, it is not clear that a homebuyers tax credit is the best use of $15-$30 billion. It would have been useful if the WSJ had not allowed the NAR view to appear unchallenged.
--Dean Baker
