I have long argued that home prices are elevated, and until they normalize, the economy will be stuck in the doldrums. I even wrote a chapter of Bailout Nation, titled “The Virtue of Foreclosure.” I make a basic economic argument that the excess credit of the 2001-07 era is unwinding, and foreclosures are part of that process.

The simple premise is that the abdication of lending standards by both bank and nonbank lenders created an enormous credit bubble. Easy money drove home prices to unsustainable and unaffordable levels. People bought homes far more expensive than they could reasonably afford. Many assumed they would be able to refinance, paying for the excess costs by cashing out the price appreciation everyone knew was sure to follow.

Of course, we know what happened next. Prices rose unsustainably, credit tightened up, and the supply of greater fools abated. So much for the real estate perpetual motion machine.

What we were left with was an oversupply of new homes, and 4-8 million people in homes they couldn’t really afford. When measure by traditional metrics like median price to median income, costs of ownership relative to renting, or Homes as a % of GDP, houses were extremely expensive.

Running 300,000 monthly foreclosures — on pace to do 3 million foreclosures this year — the prior boom process is now unwinding. Excess prices are normalizing — but they still remain somewhat elevated compared to historical ratios. Perverse though it may be, the mass Foreclosures are helping to drive prices back to normalized historic levels.

Although this process is a necessary evil, Politicians of all stripes hate it. Between the NAR and NAHB, they have ready lobby fighting market forces. The lobbyists shamelessly ignore the role their members played in blowing up the bubble, and how they encouraged irresponsible and in many cases illegal behavior. The NAR and the NAHB have yet to offer up their mea culpas for their contributions to the mess, but their roles were substantial.

All of the home mortgage modification programs and foreclosure abatements are attempts by politicos to “ease the pain.” These programs have proven themselves to be ineffective in preventing defaulting mortgages from going into foreclosure. More than 50% of all mods slip into foreclosure again, and in some instances, we see 70-80% delinquency rates.

But the real question is “Why are we trying?” Except for those instances where there has been fraud or predatory lending, we really should not intervene. The foreclosure process is restoring prices to where they should be. (Note I suggested a voluntary program last year that helped banks forestall writedowns, and allowed viable homeowners to keep their houses, but also lowered prices).

Now comes the latest attempt by politicians to intervene in the housing market: Expanding the about to expire, $8,000, first time home buyers tax credit to a $15,000 credit for everyone.  This is counter productive. (Won’t that just make prices more expensive?) The lobbyists want to goose the housing market by any means possible — even if it is an expensive and unhealthy method.

A recent Brookings Institute analysis (found via Barrons) demonstrates persuasively that the $8,000 subsidy actually costs $43,000 per extra house sold; worse yet, the new $15k tax credit will ultimately cost $292,000 per home.

How does that math work? :

“[The] refundable tax credit, which was part of the February stimulus bill, gives $8,000 to first-time homebuyers (but is phased out at higher incomes). It is scheduled to expire on December 1, 2009, although the sponsor of the initial proposal, Senator Johnny Isakson, now wants to extend the credit for another year, and expand it to $15,000. This extension would be a mistake.

Approximately 1.9 million buyers are expected to receive the credit, but more than 85 percent of these would have bought a home without the credit. This suggests a price tax of about $15 billion – which is twice what Congress intended – for approximately 350,000 additional home sales. At $43,000 per new home sale, this is a very expensive subsidy . . .

An extension and expansion of the tax credit will cost far more than the $15 billion of the current credit, likely in excess of an additional $30 billion. And the cost per new house sale will likely be much higher going forward, as a greater proportion of the sales will be for those who would have bought anyway, without the credit. (emphasis added)

In a latter posting, Gayer does the math on the new tax credit: A one-year, $15,000 tax credit  apply to all home buyers, would cost the Treasury ~$73.9 billion. Gayer estimates that beyond the people who would have purchased homes anyway, the increase in house sales would be about 253,000. Each extra home sales costs the Treasury $292,000 ($73.9 billion divided by 253,000.)

Randall Forsyth points out a lower (but still absurd) figures calculated by the NAHB:

The National Association of Home Builders, not exactly a disinterested bunch, figures the subsidy would boost house sales considerably more, by 700,000 homes. That implies each of those additional sales would cost American taxpayers only $133,000 — still “a very expensive and poorly targeted subsidy,” writes Gayer.

Its one thing to argue as to whether the government should be so brazenly intervening into the housing market, and I can understand reasonable people disagreeing. But the subsidy — whether its $133,000 or $292,000 — is absurd.


Extending and Expanding the Homebuyer Tax Credit Is a Bad Idea
Ted Gayer
The Brookings Institution, October 9, 2009


Homebuyers’ Handout — Worse Than Cash for Clunkers
Randall W. Forsyth
Barron’s OCTOBER 21, 2009


More on the Homebuyer Tax Credit
Ted Gayer
The Brookings Institution, October 14, 2009


Category: Bailout Nation, Bailouts, Credit, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

77 Responses to “$15,000 Home Buyers Credit Costs $292,000/home”

  1. Michael M says:

    Gee, I wonder if government intervention like this could have any unintended consequences…


    Rents are plunging and have been for a while. Soon even BLS will discover this. Encouraging people to switch to owning will not help.

    OER is 24.43% of CPI, OER plus rent of primary residence is 30.39% of CPI.
    OER is 31.42% of Core CPI (CPI minus food and energy), OER plus rent of primary residence is 39.09% of Core CPI (calculated from this table: http://www.bls.gov/news.release/cpi.t01.htm).

    How long before The Monstro will start talking about CPI minus food, energy and housing…

  2. flipspiceland says:

    What’s the significance of billions of dollars in a quadrillion dollar economy, or when 23 billion is going to be given as bonuses at Goldman Sucks, while they still owe the government $40 billion?

    None, that’s what.

    Give the credit; at least for some, it will offset a part of the fraudulent bonus money printed and handed to Lord Blankfein, Jamie Dimon, et al.

    It’s likely the house buyer works ten times as hard for a 1/10,000th of the pay of the Oligarchs on Wall Street that own the SEC, (Shapiro) FED, (Bernanke) Treasury, (Geithner) CFTC, (Gensler).

    I wonder if all four of these offices were held by Italians, Greeks, Irish, Scot, Polish, German or Black men if there would be any raised eyebrows?

  3. Steko says:

    Horribly dodgy way to calculate the value of the program.

    Even if 100% of the people were going to buy a house most will end up buying a house that was $15K more then they were going to without the credit. The full $74 billion gets run through the economy, helps lenders, increases demand and a tiny bit of support for housing prices (decreasing defaults). This is the sector that is going to continue to kill the economy for the next 4 years.

  4. Lets give everyone a $1 million dollar tax rebate — think how much that will goose the economy!

  5. Dennis says:

    As someone who is patiently waiting to buy a home, I do not understand why we are preventing prices from coming back down to earth.

    Every time the government tries to help a current homeowner, you hurt a future homeowner.

  6. just, another, Proof of the ol’ adage: “If you want to make something more expensive, Subsidize it.”

    for another, see http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Health+Care+spending+1960-
    btw, did y’all see that Game last night?
    you know, some things need not be divined from the ether..tho, speaking which, while I was out trying to spy any remnants of //2009 Meteor Showers and Viewing Tips. The next meteor shower is the Orionids on October 21, 2009. The best viewing will be in the hours before dawn on October 21.
    stardate.org/nightsky/meteors // a friend of mine called to chat about http://crawfordperspectives.com/ and Arch’s recent call/interpretation of negative potents for yon’ Market coming to a theatre near us, soon..

    LSS: don’t Fade Crawford, Fade the (Equity, first) Markets..

  7. Bruce in Tn says:

    Well, this is the fix debt with more debt mindset. I believe someone once wrote about a slippery slope, and fellow sheeple, we are on it.


    Rising Debt a Threat to Japanese Economy

    This article printed yesterday, reviews the problems Japan now faces because of policies very very similar to ours for many years. We are not like Japan, we truly are Japan. Neither country faces a good outcome. Yet, the Aussies have actually tightened a quarter point, and in doing so, said they would not let their country fall victim to stark inflation. The Germans pass a balanced budget amendment. And here we sit with a congress of nattering nabobs who think the only way out is with a deeper hole.

    Cut individual taxes now, raise them later, and quit adding to the bill. The feast is over, get your fat ass up from the table….

    …Somehow I feel like the entire country doesn’t have enough sense to keep from urinating into the wind.

  8. dougc says:

    It would make more economic sense to hire 1 million unemployed to build houses and the government to pay top price and then hire 1,000 excons to burn them to the ground. It appears that the housing industry has observed the success of farmers. The farm subsidy was to be temporary but is going strong 50+ years later but at least we can export corn and wheat.

  9. Bruce in Tn says:


    “Japan has been borrowing through the nose for years, and Japan, well… okay, maybe Japan’s not a good example. Japan’s economy has been in the tank for two decades.

    Actually, Japan’s a great example, says John Mauldin of Millennium Wave Advisors. What’s happened in Japan in the past 20 years is that government borrowing has largely replaced private sector borrowing: The total debt hasn’t risen, but the government’s percentage of it has soared.

    Unlike private-sector borrowing, which is (usually) productive, government borrowing doesn’t stimulate growth, Mauldin says. This may be at least part of what’s ailing Japan. And as long as we rely on the government to borrow and spend for us, the same thing could happen here. Our economy could become dominated by a huge, inefficient bureaucracy instead of lean, competitive private-sector companies.”

    …..The congressional snowball of spending…we need an election. Is it too late to have a mulligan?

  10. Winston Munn says:

    No politician wants house prices to fall as that affects the collateral position of all those MBS still held by the banks (read campaign contributors) as level 3 assets. That paper needs to be dumped onto the Fed’s (read taxpayer’s) balance sheet at current valuations before home prices – and thus the collateral for all those trillions – is allowed to take a nosedive.

    Besides, allowing home prices to fall would be an admission that the previous economic system did not work, which then begs the question of why are we trying to fix it, then?

    No, the prevailing delusion to be maintained is that home prices have always been normal, and the only aberration that is skewing housing prices is that credit is too tight. Therefore, all we have to do is create enough cheap money and all financial woes will disappear.

    After all, it would have worked in Japan if they had only doubled down and done it quicker.

  11. super_trooper says:

    These are all ridiculous assumptions. The back of the envelope calculations assumes that were are in normal times, that past history of first times house buyer applies to the deepest recession since the 30′s. We are not in normal times and thus the assumption that the tax break only resulted in 300000 “additional” house purchases are laughable. I can easily do my home made back of the envelope calculation and assume price elasticity of -2.0 (no one can deny that we are in extraordinary times) and voila, we’re at ~7000000 additional houses sold! Show me some real proof, not Ted Gayer having some fund with pen and paper. How about real research!

  12. torrie-amos says:

    like winston munn, it is still all about saving the banks, if you actually talk to people in the business foreclosures are piling up and up and up, by not foreclosing and lowering interst rates not principal the banks goose service fee’s up and up and up………it’s all fairly ridiculous

  13. bsneath says:

    I’m with you Steko. Unfortunately the majority is in the BR camp. It baffles me that we can accept that we must pump trillions directly into the acquisition of toxic assets to avoid collapse of the financial system, but when it is proposed to accomplish the same but through mainstreet where jobs are created and home ownership protected, it becomes a “slippery slope” and bad free market fundamentals.

    Once again, this is not a friggin normal, run of the mill recession. Every argument against this type if fix is 100% valid in a normal recession. This is a depression. We have lost permanent consumption demand. We must transition to a balanced economy where we actually make things again and sell them to other people.

    The laissez faire concept of let the markets seek their proper price, while totally appropriate under usual business cycles, will in today’s environment result in massive overshooting. OK this will be great if you are in the market for a house, but it will not be so great if the collateral damage sinks the rest of the economy into oblivion.

    It would be wonderful for us in the investor class who post here to be able to swoop down on the misfortune of others and grab a couple of nice properties for a song. That simply is not the right thing to do. We will be helping out our fellow citizens far more by protecting homeownership and home equity nest eggs.

    $15,000 for everyone sounds a bit rich and wasteful. $8,000 for new home buyers is more targeted.

  14. bsneath says:

    The ones who deserve the $15,000 approach, are our military personnel who have been put in harms way to protect our country. Many of these individuals are reservists who have been called up and had their careers interrupted. Foreclosure rates are 4 times higher among military personnel than the rest of us. Regardless of your beliefs on whether this is a helpful concept or a give a way, these guys and gals deserve it! I cannot see anyone opposing such a targeted program. I would in fact expand it to vouchers that could be used either to buy a home or, perhaps at a smaller amount, make existing mortgage payments or for rent. This will not fix the housing problem but it will help while helping and rewarding those who have put their lives on the line to protect us.

  15. GB says:

    We have truly become The Bailout Nation…..

    Just think if prices hadn’t gone up since the dotcom boom and we all had half the mortgage payment right now that we do have. Think how that extra money a month would go back into the economy.

    Now you have people living for a while year in their home without paying a dime and now they are asking them about loan modifications even though their house is worth half? How is giving them a 50 year mortgage going solve anything?

    I agree it’s just pushing off the inevitable and a political move. What happens when there is no more stimulus and these people start to default. oh man.

  16. Bruce in Tn says:


    The weather here has been beautiful the last few days and I have seen quite a few meteors. Many more than normal, and this is a minor meteor shower, as these things go.

  17. danm says:

    Most people still believe you can get something for nothing and that all problems will be solved with technology.

    There are 2 more factors that need to be priced in:

    1. Increased cost of materials. If emerging markets do take off, resources prices will soar over the long term and maintenance/renovation costs will follow. So the bigger the house, the bigger the cost. Not sure those 3000 square foot houses will be affordable for the middle class unless they drop by a lot.

    2. Government pensions for the younger generation will not be like their grandparents’ pension. Instead of saving peanuts, they will need to save big bucks. That means spending less on the house.

    These 2 factors are still not being priced in and it will probably take more than 4 years for that to happen. The next 20 years will be an eye opener.

  18. some_guy_in_a_cube says:

    The reasoning behind all this bad policy is “We’ve Got To Do Something! (even if it makes things worse)”.

    You can see this line of thought unfold before your very eyes with health care “reform”.

    Mix in lobbyists salivating over the thought of juicy profits (or maybe just the prospect of eating again) and you get a policy design that is completely foo-barred.

  19. jc says:

    Merry Christmas.Retailers are taking an axe to electronics prices, some mini boom!

  20. cvienne says:


    “Lets give everyone a $1 million dollar tax rebate — think how much that will goose the economy!”

    I know you’re just being snarky there, but think about it… With all the madness going on right now, what would @sshat Americans do with the million?

    I seriously doubt they’d pay off debt!

    Instead, they’d collectively bid the price of AAPL shares to $1,000, gold to $4,000, and oil to $300 a barrel…

    Then, as they were admiring all their new paper wealth (and before they’d had a chance to buy anything with it or do something productive, Lloyd Blankfein would pull the switch and short all those shares…

    The cascade in prices would put ALL the ownership of everything right into his hands (as he’d cover those shorts at rock bottom prices), everyone would be left broke again, except NOW they’d be paying $6 a gallon at the gas pump…

  21. Michael M says:

    During the last 2-3 decades money became cheaper and production could be moved abroad. This raised a fundamental question: What should the we do with the cheap money and the available minds/hands at home? The first answer implicitly given was “increase leverage and employ people in finance, real estate, retail, and government”. Like so many other first tries it didn’t work out so well.

    These are all shuffling industries – finance is about redistribution of capital and risk, real estate is about shuffling people from one home to another, retail is about getting something from production facility into the consumer’s hands and government is about redistributing taxpayer money. On top of this you have a lot of basic services and retail that are simply transferring a job from one person to another (e.g. dry cleaning instead of washing and ironing your own shirts). Some shuffling is necessary and benificial in any society, but you want to keep it at a minimum, not make it the foundation of your prosperity.

    Also, while I strongly believe in renewable energy as a means to stop global warming, let’s not kid ourselves. We are not generating many more jobs by promoting renewable energy (unless it leads to other non-energy related discoveries), we are simply shuffling jobs from fossil fuel and traditional construction industries to renewable energy and green construction industries.

    Government is doing all it can to get back to the good old leveraged shuffling days. They will keep going in that direction until the problem is solved – by somebody else.

    Barry asked a while ago where the jobs will come from. I have no idea. But let’s hope they come soon from good software, biotech, robots and other true innovations rather than more shuffling.

  22. jc says:

    Let’s get real here folks: The banks would prefer to let empty houses sit versus forcing the buyer into foreclosure because they would then have to take the loss when the house was sold.

    In other words, in this new world of zero mark to market accounting, it’s in the banks’ best interest to just let the empty homes sit in limbo because they can keep a loan marked at full value versus taking a 40% loss on a sale via foreclosure.

  23. Bruce in Tn says:


    ‘Double bubble’ means more real estate trouble

    Developers face huge crunch as downturn hits office buildings, malls, hotels

    …What about our commercial real estate brothers? I think after Xmas we may see a spike in walk-aways…I am coming around in that thinking…..

    “That big whoosh you’re hearing is the air rushing out of a commercial real estate bubble.

    More than two years into the worst housing crisis in decades, commercial real estate is shaping up as the second half of what some are calling a “double bubble.” Owners of shopping malls, hotels, office space and apartment buildings — and the bankers who financed them — face a major crunch over the next two years as the mortgages on those properties start coming due. ”

    “Owners of commercial properties — especially those that aren’t generating cash — face a major squeeze when their loans come due in the next few years. Prices are down 35 percent from the peak, making it all but impossible to refinance some commercial properties.”

  24. torrie-amos says:

    agree jc, because there is no labor cost associated with it downsides are capped, or so they think

  25. [...] For more on the math, the underlying studies, and Ritholtz’ similar view re foreclosure abatement see his blog entry at The Big Picture. [...]

  26. wally says:

    “Although this process is a necessary evil, Politicians of all stripes hate it.”

    Maybe so, but they do not hate it as much as they hate it when their good friends and benefactors, the bankers, face the same problem.
    They are quite willing to tax the populace to support the aristocracy… but not the other way ’round.

  27. benesposito says:


    I have to dsiagree with this math. Although i agree completely with your sentiments and argument against intervention, the math from the article is a different issue.

    The problem as I see it is that the cost is being calculated as the tax revenue lost from people who would have bought homes without the subsidy, who would now be paying less taxes. However, you have to consider that if the subsidy changes the price of the homes (higher), this results in higher tax revenues than if the prices were lower (no subsidy).

    If they save $73 billion in deductions, but have to give X billion to states in aid, or lose revenue in sales tax (not sure in the US if you pay tax on home sales, we sure do in Canada), etc etc, that difference needs to be accounted for.

    Don’t you think?


    P.S. I grant you that ruining housing affordability in the long run may prove far more costly than either of these sceneraios if it just delays the price crash, and adds more debt to people’s personal balance sheets.

  28. Greg0658 says:

    Barry – I don’t see in the thread top write-up an acknowledgement that Housing & All the Releated Industries is required to connect the economy from the super-corps to the Joe & Jane 6 Packs swinging hammers and the Bill & Brenda Wine Glasses pushing paper (the trickle down) .. which creates the tax flows that makes it all go round.

    So once you take that in .. with all the build up that went on .. what needs to be done .. thats PC .. plain correct too?

    I started typing other businesses that a J6p & Bwg can get involved in that will be near guarenteed growth pursueing a product of ultimate resell value …. the 1st in the list I thought of *restaurants* hardly is in the same league .. but is a business option .. as for the other ideas in the list – weaker and weaker – so I cut em .. its really “to each his own” after housing.

  29. Andy T says:

    Great article Barry. We’re pushing more credit at people who don’t really want to buy anything anymore. You can push all the free credit at people you want, but when the consumer/home buyer is “done” and says “no more” to payments, then it’s over. Humpty Dumpty’s men couldn’t put him back together again….We need to just let this process play out unabated.

  30. HCF says:

    What most people don’t understand is that all the subsidies for housing act to HURT the average family, not help it. Without all the tax credits, low interest rates, and explicit subsidies, people would have to bid for houses with mostly cash, not with other people’s money (i.e. debt). As such, many unqualified buyers would not be in the market and as such, could not overbid for property with money the don’t have. The premium for home-ownership over renting would shrink greatly. Most of all, housing would be affordable, not a money pit that the average family is enslaved to.


  31. call me ahab says:

    ” refundable tax credit’

    i want everyone to understand what this means-

    you buy a house- you claim the credit of $8,000- let’s say your income taxes owed = $4,000- the USG sends you a check for the difference-

    $4000- so if your tax bill is less than the credit- you will get a check from Uncle Sugar-

    smart! the USG- always looking out for their lobbies- NAR, MBA , NAHB-

    regardless that it artificially props up prices- and what happens when they try to extricate themselves from the housing market-

    hmmm . . . wonder if anyone has even thought that far ahead- probably not-

    and don’t forget- the $15,000 expansion is a Republican initiative- you know the small government/control spending party-

    what a joke

  32. Greg0658 says:

    Dennis at 7:07am .. and when your home investment or bank account is in serious danger for the rest of your lifetime and no MEW for you .. whats your tune then?

    flip at 6:22am “the Oligarchs on Wall Street that own the SEC, (Shapiro) FED, (Bernanke) Treasury, (Geithner) CFTC, (Gensler)” .. I watched “The Warning” last night via www (sorry Comcast) I fell asleep waiting and didn’t record it … I had one thing to say and will go over to PBS soon (TBP 1st)
    What or Why didn’t Brooksley Born say to the world finance paper pushers “OK you wanna do that all off the record behind closed doors – DONT COME CRYING to the USG courts .. PERIOD” .. wouldn’t that have shut it down the Maestro way … and I found the answer to “were you all wroung in the head” answer “Yes” after the drugs had been dealt all over the world … well I’m thinking about that …. maybe I have more in my corner that I think .. odd (bad) way to go about it tho.

  33. By Kathleen M. Howley

    July 24 (Bloomberg) — The number of vacant houses hit an all-time high in the second quarter as the U.S. real estate recession pushed homeowners into foreclosure.

    A total of 18.6 million U.S. homes stood empty, more than at any time in history, as lenders seized a record number of properties. The figure was 6.9 percent higher than a year earlier, the U.S. Census Bureau said in a report today.
    Published: January 27, 2009
    More than a quarter of the nation’s bridges are structurally deficient or functionally obsolete. Leaky pipes lose an estimated seven billion gallons of clean drinking water every day. And aging sewage systems send billions of gallons of untreated wastewater cascading into the nation’s waterways each year.
    More Politics NewsThese are among the findings of a report to be released Wednesday by the American Society of Civil Engineers, which assigned an overall D grade to the nation’s infrastructure and estimated that it would take a $2.2 trillion investment from all levels of government over the next five years to bring it into a state of good repair….”
    Housing is the least of our problems..
    LSS: try running an Economy without adequate Water delivery/Wastewater treatment and/or Transportation infrastructures..

    drop a note to Bill & Brenda, tell them that their ‘Cheese’ has, indeed, been moved, and, better yet, peep have figured out that ‘paper pushing’ is just another form of ‘drug pushing’. Kindly, provide feedback on their reaction..
    Good to hear that you had good viewing. Here, in the Valley, had some Clouds, seemingly, per usual, that, in conjunction with moderate light pollution, obscured ‘the Show’ somewhat..

  34. GetALife says:

    How is this any different than piling more taxes on high income earners and then transferring that money to lower income earners? Same outcome: money is going to people who didn’t earn it or work for it.

    Tax Burden of Top 1% Now Exceeds That of Bottom 95%:


    BR: Such are the burden of owning most of the assets of a nation!

  35. ashpelham2 says:

    It really is a generational change to see how much people in my age group (28-35) spend on homes, especially as a percentage of our income. I’d like to see some data on that, perhaps as a graph laid over the top of 28-35 year olds from the 1940′s, 50′s, 60′s, so on… It has to be a multiple higher than ever before.

    So what comes of it? I see the end game being that fewer and fewer will actually retire. I believe I read that the natural unemployment rate, or average in the US since it began being tracked was ~7%. So, we are well above that now, near 10%. We spent several years at historically low rates. We will drop back down again at some point, but 7% might be the natural number. With that many people out of work, there has to be some effect on depressing wages, so less income, less to save, but the big debts of the roaring 2000′s are still there, 30 years ahead of us.

    I don’t think I can adequately save on my income and the amount my wife COULD make if she could find a job, enough to send both of our girls to college. I’ve done the math, and with our mortgage, which was about 18% of our gross monthly at the time we took it out in late 2003, and no growth in wages at all, either in real or inflation-adjusted terms.

    It’s a real disheartening thing to be a part of, when you’ve had zero to negative wage growth, less than 0% S&P returns in my working career over the past 10 years.

    Where does the opportunity come from? I can only keep cutting my standard of living so far. And for anyone who asks, no, I don’t believe that we can have a middle class lifestyle, whatever that means, on one income anymore.

  36. “…“To truly understand the costs, we will not know that until Americans have filed their tax returns,” Donovan told the Senate Banking Committee. “We believe it’s critical to have the information necessary to make a fully informed decision about the costs.”
    Tax filing season doesn’t start until next year. But Donovan said he expects to get cost data in the next few weeks. “We understand the urgency of this situation,” Donovan said.
    The Internal Revenue Service has opened 107,000 examinations of questionable claims and identified 167 criminal schemes involving the tax credit since it was expanded as part of the economic stimulus package enacted in February.
    But lawmakers understand the program is popular and has helped the struggling housing industry recover.
    Lawmakers said they might add protections to help prevent fraud. But there is a growing consensus among congressional leaders that the housing market is still fragile enough to justify extending the program.
    House Majority Leader Steny Hoyer, D-Md., said he favors extending the existing credit through the end of the year as lawmakers work to “find out about how ethically and how honestly this policy is being pursued.”…”

    Senate Banking Committee Chairman Chris Dodd said, “We still need to use every tool at our disposal” to help the housing market. Dodd, D-Conn., has joined Sen. Johnny Isakson, R-Ga., in sponsoring a bill that would extend the credit until June 30 and expand it to people who already own homes.
    It would cost about $1 billion a month to extend the existing credit, according to congressional estimates. The bill sponsored by Dodd and Isakson is estimated to cost $16.7 billion.
    The existing credit allows qualified first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. Homes purchased after Jan. 1 are eligible. The full credit is limited to single filers making less than $75,000 a year and joint filers making less than $150,000.
    About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit…”
    you just can’t make this stuff up..

  37. Johnny began his business career in 1967 when he opened the first Cobb County office of a small, family-owned real estate business, Northside Realty. Johnny later served as president of Northside for 20 years, presiding over the company’s growth into the largest independent residential real estate brokerage company in the Southeast and one of the largest in America.

    Johnny entered politics in 1974 and served 17 years in the Georgia Legislature and three years as Chairman of the Georgia Board of Education. In 1999, Johnny was elected to the U.S. House of Representatives for the first of three terms before being elected to the U.S. Senate in 2004. He will be up for reelection to the Senate in 2010.

  38. [...] Read more from the original source: $15000 Home Buyers Credit Costs $292000/home | The Big Picture [...]

  39. Greg0658 says:

    dougc at 7:29am .. b i n g o – and bingo was his nameo
    bsneath at 7:55am .. consumption needs a dry warm storage place
    danm at 8:05am .. yep – the world rebalance that USA was at the top off – sorry kids – cue “Never Promised You a Rose Garden”
    cvienne & BR at 8:11am .. interesting concept and analysis
    Michael M at 8:12am .. I think we’re getting at it here

    nice thread going .. thanks BR and TBPers

  40. GetALife says:

    ashpelham2 Says:

    It really is a generational change to see how much people in my age group (28-35) spend on homes, especially as a percentage of our income. I’d like to see some data on that, perhaps as a graph laid over the top of 28-35 year olds from the 1940’s, 50’s, 60’s, so on… It has to be a multiple higher than ever before.

    Not so. Have you missed the news reports in recent years? Housing prices are down a lot in most areas. That has made housing far more affordable

  41. DeDude says:

    I agree that too much of the 15K would just be money right down the pockets of those that own the bad loans. But support of house prices to get a slower pace of reduction, is in everybodies interest. Those who are in trouble need time to adjust and overcome their trouble. The only people that win if house prices undershot are the vutures. Personally I don’t favor the vulture over hard working Americans who got trapped into believing they had a shot at the American dream. All these forclosures are also bad for the economy, because they create a substantial loss to people in the consumer class, handing the gains mostly to vultures from the investor class.

    But I agree, we do not need a program that will help more people being propped up and able to buy houses. We need more help to those who got trapped into bad loans they did not understand, and who are ABLE, and willing, to fight it out (if they can get a brake on the terms of their loans). That actually doesn’t have to cost government any money. Just allow modifications of loans in bancrupcy. That simple change in the law would reduce the total losses and put them all on the owners of the loans.

    The house and car subsidy programs were supposed to stop the free fall in those markets by borrowing demands from the future. They did that and any continuation is unjustified because there is no free fall to fight any more. They are also likely to be much less effective than the initial programs because there is not that much free cash on the sideline left.

  42. thetanman says:


    Its all about you taking on as much debt as possible.

  43. batmando says:

    @ cvienne at 8:11 am

    “Lets give everyone a $1 million dollar tax rebate —

    I seriously doubt they’d pay off debt!

    Instead, they’d collectively bid the price of AAPL shares to $1,000, gold to $4,000, and oil to $300 a barrel…”

    Hey, if GS takes Fed $ and speculates in oil with it, why shouldn’t the J6P get a crack at it too?

  44. Bruce in Tn says:

    It is too late to bid AAPL to 1000…Harry sold all his shares yesterday.

  45. franklin411 says:

    Well, it’s finally happened. Barry has returned to the temple of free market fundamentalism that got us in this mess. Welcome back, Barry!

  46. ashpelham2 says:

    deDude @9:56 am: Right on, bro. I think you have the answer right there. I believed like most of us that those markets were in a free fall, and could use a little goosing just to stop the bleeding. I wouldn’t have done the cash for clunkers the way it was done, but nevertheless.

    Now, it’s time to let those programs die. If the economy is truly “recovering”, the way the Big Boys are trying to convince us, then we don’t need the stimulus goosing us along anymore. Those industries and markets need to get back on their own feet. My wife is unemployed, as I mentioned, and I’m not totally in favor of extending jobless benefits past 52 weeks either, like so many are advocating. In 1 year’s time, she should be able to find something that will pay our family. Pay cut? Yeah, probably. But we didn’t live up to her and my previous incomes to begin with, so it’s manageable.

    On the other hand, I’d like to get as much out of these basterds as I can…….

  47. jonpublic says:

    Rubbish Barry. It’s not that expensive.

    Most of my friends and I would have probably waited if not for the tax credit.

    The other thing you need to realize is that it’s inflating home prices by about 8k, which means people are less likely to walk away from their homes because they are not as underwater as the would have been. It’s a huge problem here in Michigan, people walking away from their current homes and purchasing foreclosures for much less.

    It’s also inflating property values, which is giving states a boost.

  48. HCF says:


    How is any of this free market? You mean like the corporatist state we live in? Very few things are a free market?

    Banks? With the Fed, discount window, “too big to fail,” TARP, etc., it isn’t a free market…
    Health care? Most states have insurance oligopolies and subsidized health care (see Medicare/Medicaid).
    Real estate? Can we say Fed buys 80% of MBS, tax credits up to wazoo, housing subsidies left and right…

    What IS a free market in this country? Perhaps consumer electronic devices… Guess what, the free market works pretty damn well there!!!

    The problem isn’t having a free market, it is that we lack a free market in most parts of the economy. If we kill off subsidies for individuals and (especially) corporate entities, and vigorously enforce a few important rules (re: anti-trust, fraud, collusion, etc.), we would be much better off…


  49. HCF says:


    In other words, the 8k tax credit is for the benefit of BANKS and LOCAL/STATE GOVT. coffers and not the individual… What exactly is the problem with an overly indebted family walking away from their house and renting an equivalent for much less? Mortgages are a contract: pay the bank or give up collateral. Both are morally equivalent and depending on economic/financial conditions, one or the other is better for the individual!


  50. ashpelham2 says:

    The line has already been drawn in the sand, with respect to who is more important in the USA right now: Corporate interests and their political counterparts. If we were truly offering the $8K credit and the cash for clunkers to benefit MAINLY, not totally, but MAINLY the consumer, the money would have been given directly to the consumer to let them determine how best to use it. If that money was used to buy homes or cars, then that is what the consumer, who is 70% of this economy (or was before we had our jobs moved to Bangalore), decided was best for him or her. Instead, we don’t get that credit unless we juice a market (autos, homes, etc).

    Instead, I would imagine that a lot of consumers would have used that money for savings, for debt repayment, and other self-interested, APPROPRIATE needs. But we can’t have that. It’s better for Americans to stay indebted to those industries, as we depend on them to provide us jobs.

    It’s a perverted ecology, this American economy….

  51. Greg0658 says:

    HCF @jonpublic at 10:18am
    when I got out of the Army .. I rented from mom & dad one of their rentals that I thought had potental (till I moved into and stayed for 10 years of passivity) .. they forced me into buy it or get off the pot .. um now (if you follow me in these threads) I’m settled in elsewhere – nearly paid off – and 180 lbs of 6foot2 eyes of blue .. but heavy and chained (if ya know what I mean) like a good little American consumer .. but I had/having .. ya “Hell of a Vision”

  52. ashpelham2,

    with this: “It’s a perverted ecology, this American economy..”

    you may like this

    I’d give it a 72, but thought it worth reading..

  53. franklin411 says:

    Free market fundamentalism means that a person believes that the market is always perfect. Those who attack free market fundamentalism, such as myself, argue that the free market has to have rules and police, because otherwise people will inevitably try to game the system. The housing bubble happened because the rules were removed and the police were incompetent.

    Barry makes an argument here based on free market fundamentalism: that we shouldn’t help the foreclosed, because the market is only returning to rational prices. He makes an allowance for fraud and criminality, of course.

    What Barry and his free market fundamentalist allies ignore, however, is that the ENTIRE housing market from 2001-2008 was a fraud. The average homebuyer may or may not have known better, but they had no choice but to consume the product–we have to have roofs over our heads. Heads they win, tails we lose.

  54. Bruce in Tn says:

    I heard a talking head today on the radio on the way to the salt mine state that 10 years ago worldwide investment by central banks was 67% denominated in dollars….now, this month, it is 67% in Euros and Yen for new investments and only 33% in dollars…

    Could one of you brainiacs enlighten me if there is any truth in this?


    B in T

  55. larry says:

    I don’t see this changing anytime soon:
    1) the allure/cult of home ownership (own a house with a lawn, white picket fences, etc.)
    2) the power of the lobbyists: combine Wall Street with mortgage brokers, realtors, developers, etc.. How can you win against that lobbying power? And their influence scales with government, starting at towns to Congressional districts to states.
    3) social and economic forces are committed to suburban sprawl

    It’s just a long chain of programs and subsidies, from mortgage interest deductions to Freddie and Fannie, to FHA.

  56. Mannwich says:

    @franklin411: It’s STILL a fraud now. How has anything changed? It won’t until prices revert to a place that clears the market. On a whim, I looked at five homes in the $200′sK in my neighborhood last night. Of the five, I would say that maybe 2-3 are definitely not occupied (and one is occupied by the the son of a woman, who is a realtor and had been renting it out but wants to dump it now, gee, I wonder why? Tax credit, perhaps?). This tax credit is merely another con in the long line of cons sponsored by our corporatocracy to fleece the Sheeple. Once this credit goes away, it’s curtains again for the housing market. There are still loads of shadow inventory out there that need to be sold.

  57. Pete from CA says:


    “The average homebuyer may or may not have known better, but they had no choice but to consume”

    Utter bullshit. Myself and several others on this board are renting, waiting for the government meddling to stop and for the prices to come down to reasonable levels.

  58. franklin411 says:

    I have never owned a home–I am a renter as well. The rising cost of housing during the bubble affected everyone, including apartment dwelling renters such as myself.

    The market was a fraud from 2001-2008. The people who bought then were defrauded. You can’t say the casino was rigged, any winnings people might have will be repossessed, but any losses will stand.

  59. dougc says:

    It sounds like a wonderful idea. I own a worthless shack in western ok and have agreed to sell it to my brother for 15,000 and rebuy it for 7,500, then we are going to Las Vegas and blow it on hookers, drugs and gambling. Bring it on, I’m getting horny already…

  60. Greg0658 says:

    rest of the story .. goosed* mom & dads bottom line by 1/2 in those 10ys .. hindsite after the property sold
    * sorta .. you know those other things; taxes, insurance, a roof (helped on)

  61. Greg0658 says:

    dougc at 11:03 am … “wonderful” .. LOL

  62. f411,

    you go w/: “but they had no choice but to consume the product–we have to have roofs over our heads.”

    yes, of course, especially one that you couldn’t afford? but, but ‘we had No Choice’ ? as flippin’ if..

  63. Bruce in Tn says:

    The idea that will eventually gain legs. A balanced budget amendment. In my business and in my family finance, we’ve always had that amendment. Time for BushBamanomics to hop on board.

  64. HCF says:


    Thanks for the link… I shouldn’t neglect the FCC, but all in all, you have more choice buying Mac vs. PC, or Samsung vs. Sony TV than you have in banking or healthcare, imho…


  65. sharkbait says:

    This is stupid. I can only think of an old movie: “It’s a Mad, Mad, Mad, Mad (did I get ‘em all?) World!”.

    What kind of idiots would try to stimulate house prices, when they’re mean reverting now. Does anyone know anything about economics, or just corrupt politics?

    Our gov’t should be fired.

    How about creating some real jobs so that real people can afford to buy a house – with 20% down, and so skin in the game.

    Morons. Mal-adroits, Nincompoops. Time to clean out the stables in Washington. Starting with the lobbists: Tar and feather + run out of town on a rail.

    Two Examples of “keep” housing up to save the banks – at taxpayer cost. Housing bubble, part Deux.



    Denise Tejada bought a house last month at the age of 20, thanks in large part to a loan guaranteed by the Federal Housing Authority.

    This story offers a dramatic demonstration that, despite the housing bubble causing the worst economic downturn in generations, the ideology of home ownership is alive and well in the United States and still being supported by the government.

    Without question, Tejada’s loan is toxic–to her and to the taxpayers who are backing the loan. Her house cost $155,000. Tejada’s loan was apparently made on a micro-down payment of just 3.5%, the minimum down payment to qualify for an FHA loan. On top of this, however, she got an additional government backed loan to make improvements. Her total loans amount to $183,0000. In short, she was immediately underwater on her new house.

    The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She’s paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments.



    The stories about a return to bubble-era lending standards are getting too depressing to bear.

    There are the no-down payment loans backed by the USDA, the FHA mortgage worth more than 110% of the value of the home, and now this: babies buying homes.

    Georgia Congressman John Lewis is holding hearings:

    “We will hear today that taxpayers claiming the credit include those: who already owned a home, who had not yet bought a home, and who are children—some as young as four years old. There are possibly hundreds of millions of dollars that have been paid to taxpayers who are not entitled to the credit. We want to, and we need to, stop this fraud and abuse.” [Quote from Rep. John Lewis at the House Ways and Means Subcommittee today]

  66. GetALife says:

    And the Sweeping Generalization of the Year Award goes to:

    franklin411 who Says:
    The market was a fraud from 2001-2008. The people who bought then were defrauded. You can’t say the casino was rigged, any winnings people might have will be repossessed, but any losses will stand.

    Real estate is a LOCAL business pal. Some markets were inflated a lot, some a little, some not at all, some for many years, some for a few years.

  67. HCF,

    I hear you, was just pointing out that (to your, original, point “What IS a free market in this country?”) not even, seemingly, ‘free’ markets, like CE, are anywhere near being unmolested by our State..

  68. HCF says:


    I am a fairly free-market oriented person, but I DON’T believe that the free market is correct. It’s very, very often wrong, but I would argue that is is less often wrong than policymakers, government agencies, or anything else you can come up with (short of omnipresent, omnipotent, and benevolent power). The fact that the free market fails is a reflection on the fact that PEOPLE fail. We get greedy, we get scared, we get exuberant. All that is reflected in market psychology. We live in a world of precious, finite resources. How we allocate those resources should not be primarily up to a few elite people in charge… You should be free to make your choices, and free to receive the windfall or suffer the consequences.

    >The housing bubble happened because the rules were removed and the police were incompetent.

    I must refute the statement you made above… The housing bubble happened because the rules WERE NOT ENFORCED and the police WILLFULLY ENCOURAGED IT. That’s the problem with centralized systems such as the Fed or the Federal Government. They tend to propagate someone else’s interests and not those of the people at large!


  69. sharkbait says:

    The Story Of 21 Year Old With The Underwater FHA Loan Is Even Worse Than You Think


    A few days ago we told the story of Denise Tejada, the 21 year old California woman who bought a house with an FHA backed loan with almost no money down.

    Readers were outraged.

    And rightfully so. It’s our money on the line and it is simply outrageous that our government is still encouraging these kind of loans to be made. Even if Tejada pays off her loan in full, it was an insane gamble on our behalf to have the government back her loan.

    But as it turns out, the gamble was even more insane that we originally reported.

    Scott Jagow, who writes the Scratch Pad blog for American Public Radio’s Market Place, explains:

    Denise got an FHA loan to buy her home for $155,000. She took out a second loan (called a 203-K loan) to refurbish the place. The total loan amount is about $183,000. She says, “In total, I gave the bank $5,087 + $1,500 which were all deposit and closing costs.”

    So her “down payment” was no more than 4% of the value of the home when she bought it. She will get all of that back and then some with the first-time home buyer tax credit.

    In other words, thanks to the various government tax breaks, Denise put absolutely no money down on her home. If she has to default on her mortgage, she’ll lose nothing except her credit rating. Of course, since she’s only 21 years old, there’s plenty of time to recover from that.

    How is the FHA still engaged in promoting this kind of lending? Barney Frank has explained that expanding home ownership is the policy of the United States. Now, more than ever, the government wants to promote home buying to prop up the great American home ownership scheme. If people like Tejada can’t buy a home with no money down, then the recession wins.

    Don’t you feel awesome for helping Tejada achieve the American dream?

  70. HCF says:


    I think we’re in general agreement =) The state interferes with nearly every transaction in this country, whether implicitly or explicitly. I was thinking maybe food shopping was a free market, but then I thought about sugar tariffs, corn subsidies, cattle ranching on Federal lands, food pyramid propaganda, and other ways that the “invisible hand” of government affect something as mundane as figuring out what’s for dinner.


  71. [...] earlier post about the first time Homebuyer tax credit — $15,000 Home Buyers Credit Costs $292,000/home — seems to have hit a [...]

  72. Pete from CA says:


    So because the casino was rigged for 8 years, your solution is to keep it rigged? For how long? When does this end?

    Read sharkbait’s post. The people who bought between 2001-2008 had a choice. I don’t have a choice in subsidizing Ms. Tejada.

  73. HCF,

    yes, I agree. and, yes, Ag subsidies are a whole ‘nother kettle of fish.

    I may be wrong, but I’ve long thought that if someone like Liz Claman, over the course of an hour, walked the American People through the major twists, and turns, caused, in our Economy, by Ag subsidies, alone, the Incumbent survival rate would invert come the next November..

  74. Greg0658 says:

    sharkbait at 11:37 am .. the Story Of 21yo Denise .. me now factitously “way to go Denise” .. I say “import those dollars into your community with the stroke of a pen” .. “a capitalist soldier” .. “you go girl”.. “its the American way”

  75. Steko says:

    “Lets give everyone a $1 million dollar tax rebate — think how much that will goose the economy!”

    GOOD POINT BARRY. We may have to reevaluate the program if the evil gubmint decides to haphazardly increase the scale by 400000%.

    In his defense Straw Man accuses you of an illegal headbutt.

  76. Greg0658 says:

    me (Greg0658) at 9:30am .. “What or Why didn’t Brooksley Born say to the world finance paper pushers “OK you wanna do that all off the record behind closed doors – DONT COME CRYING to the USG courts .. PERIOD”

    no one called me on it (here or PBS) .. last night was thinking how that comment relates to me and my business .. with BRs post on NDAs .. well mia-culpa time

    for some reason me thinking that because we are talking about $550T* in “off the record behind closed doors” transactions (* I’ve heard that / but how could we know) that $550T is to big to reasonably police that Brooksley should tell folks who signed contracts “your on your own” or somehow imply by not dealing with the issue at all that the USG would not address the issue (sort of like the Supreme Court can do) … But all the contracts in my file cabinet are behind closed doors .. not run thru some market – in the open mechanism .. and I would hope that if I get stiffed .. that I could have the option of going to court

    So .. I’m sorry Ms. Brooksley Born for calling you unfairly for doing your job in an area I should stay out of because its not mine .. sorry. Please accept my apology .. please.

    * coda – there is a bit of difference between a wedding photos contract and insurance hedges (I guess .. maybe .. )