Sunday, September 05, 2010

A startling trial balloon

The New York Times suggests that the Obama administration may just  give up on the housing market.  There is a school of thought that the government should stop discriminating against future homeowners, in favor of current homeowners, with all these programs designed to prop up prices.  The worry is that no one knows where the bottom really is, and the process of getting there will be very ugly.

I suspect that this is the beginning of wisdom, or it could be.  So what does it mean that it appears in the Times?


JLM said...

The Times probably felt it couldn't ignore the widely noted "trial balloon." Question is, will the strategy work?

Ask average home shoppers which would better encourage them to buy, a $8,500 tax credit or a $10,000 price reduction. Bet the majority prefer the tax credit.

This psychological quirk seems to relate to our hatred of taxes. We value a dollar of tax savings more highly than a regular dollar.

Jim Gust said...

My understanding of the way the tax credit worked is, after you close purchase you immediately refile your tax returns, and the government sends you a check for $8,500 (or whatever you qualify for). So you've traded a long-term liability for an immediate boost to purchasing power.

The $10,000 discount doesn't work that way. That may explain the preference for the tax credit.

JLM said...

Does this relate to the strange (to me) custom of taking out a larger car loan than necessary in order to obtain "cash back"?