walkitout (walkitout) wrote,

housing market conundrums

I've got two, currently, and then I'm off to bed.

There's a lot of consensus that giving people a tax credit to buy a house is dumb, because the only people who are going to take advantage of it probably would have bought anyway, so you spend a huge amount of money with no impact. There's also a lot of consensus that when the credit goes away, the amount of buying going on is going to drop like a rock.

I don't understand how these can _possibly_ be compatible statements, except in the limiting case of the tax credit compresses sales in a short time frame that might otherwise be spread over a longer time frame. And I think the coverage of people shopping for houses indicates quite strongly that a lot of these people weren't going to get off the pot until someone waved cash at them.

The second conundrum involves whether a further wave of defaults and foreclosures (possibly "strategic" defaults as people realize they are going to be underwater for a decade or more, and/or they need to move for job opportunities) will lead to further price drops. A lot of people keep floating this idea, and it makes _no_ sense to me. Anyone with the capacity to qualify in any discussion as a "strategic" default is going to go find somewhere else to live. They aren't going to be couch surfing; they probably won't even double up. Net zero impact on the overall housing market (they'll either buy again if they can swing it, or rent, and either way, their new demand will cancel out their addition to the supply). Whoever owns the debt is going to be hurting, of course, but if prices really have stabilized at much lower than the defaulter owed, I don't see where the downward pressure comes from. I think this is one of those rule-of-thumb things that has a qualifier that someone forgot to include when they applied it.
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