Applications for the thrice-extended First-time Homebuyer Credit (FTHBC) ended in April 30, with the construction to be completed by June 30. At the end of each previous credit, we saw a slump in housing numbers. The transition from April to May has been no exception. While the goal of the housing credit was to try and boost demand by making homes affordable, all the credits have really done is steal demand from the future. Here is how the May slump began:
Building permits: down 5.9 percent from April
Housing stares: down 10 percent
Housing completions: down 7.4 percent
Essentially, the tax credit—as well as the downward pressure Treasury and the Federal Reserve are putting on mortgage prices by offering financing from an otherwise insolvent Fannie Mae and Freddie Mac system, plus a program that purchased $1.25 trillion in bad mortgage-backed securities—is creating an incentive for people who want to build a home later, to build it now. There is no sustainable home ownership gain through the credit, simply subsidized housing that is keeping the market from falling to its natural bottom and then recovering organically, stably, and sustainably.
Here is a visual example of what the FTHBC has done to prop up the demand for new homes:
Source: U.S. Census Bureau
The rate of building permits demanded has farther to fall. It isn’t knowable exactly how much, but there is organic downward pressure that is being fought off by government programs, litterally propping up the housing market. That may be good short-term politics, but is bad long-term for the economy, for homeowners, and for anyone that wants to avoid another housing bubble.