President Barack Obama’s tax credits program for home buyers is the main reason the housing market is still in crisis, economic blogger Megan McArdle says. “All the Housing and Urban Development Department’s TCAP program did was distort the market by pulling demand forward from future years,” McArdle writes in
The Atlantic.
A new report from Zillow.com says home prices fell another 3 percent in the first quarter of 2011. Zillow pushed back its prediction of when the housing market will hit bottom from “the end of 2011” to “2012 at the earliest.”
In a few markets such as Washington, D.C., the program caused prices to rise as a lot of buyers were chasing relatively few properties, McArdle says. Elsewhere, it stopped prices from falling.
“We crowded a larger number of buyers into the market without enough time for supply to really respond, because too many of the houses that needed to be sold were encumbered by underwater mortgages,” writes McArdle, who acknowledges that she herself overpaid for a house while the program was in operation.
“After the credit, it all collapsed again,” she writes. “There were a few months of confusion, because it took a while for prices to adjust to the new reality: supply was higher, but all the buyers were gone. Almost everyone who had intended to buy in the next few years had moved their purchase forward in order to get the tax credit.”
McArdle concludes: “We simply moved some of the pain into the future. We didn't actually make the process less painful.”
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