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New Homebuyer Tax Credit Arrives but Is Destined to Fail

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As long as the employment market remains anemic, current home price levels won't be sustainable. And no amount of handouts will change this.

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Home prices want to come down. Home prices need to come down. And home prices will come down, as soon as government gets the hell out of the way.

All it took was a couple months of lousy housing data and Washington is at it again, propping up a market that's desperately groping for a bottom. If bureaucrats would just step aside and admit that their piecemeal solutions simply delay the formation of a fundamental bottom, we could be on the actual road to recovery.

But it is not to be.

According to HousingWire, a mortgage trade publication, yesterday Fannie Mae and Freddie Mac announced the latest iteration of the homebuyer tax credit.

Not nearly so far-reaching as the $8,000 credit that expired this summer, and no doubt enacted at the behest of the National Association of Realtors, Fannie and Freddie are doling out cash to new buyers and the real estate agents who close the deals. A buyer planning to occupy a home foreclosed by Fannie or Freddie can get a closing credit of as much as 3.5% of the purchase amount, while listing agents stand to earn a $1,500 bonus for purchase contracts signed by the end of 2010.

Couple the offer with a low-money-down mortgage from the Federal Housing Administration, and voilà!: government sanctioned, subprime, no-money-down loans, all stamped with the full backing of Uncle Sam (read: taxpayers).

The program, officials hope, will encourage owner occupiers to step back into the market and fill a void left by the expiration of the federal tax credit. And while the incentive may push forward a few sales, it will do nothing to address the fundamental challenge facing America's troubled real estate markets: jobs.

As long as the employment market remains anemic, current home price levels won't be sustainable. And no amount of handouts for homebuyers will change this fact.

The Administration's unwillingness to accept the fundamental flaws of its stated policy of propping up home prices is making the downturn longer than it needs to be. The more tax credits, handouts, and other stimulus prospective buyers see, the less likely they are to jump into the market when the en vogue credit expires. Why buy now when it's virtually certain the next tax credit program is just around the corner?

This cycle, this self-fulfilling dependency, risks creating a permanent "need" for housing stimulus for the market to even function. (Of course, many would correctly argue that the market in its current form is already unable to function without the government crutch.)

So, as the double dip gains steam, and laggy housing data bears out what we on the ground have known for months, government will scramble to devise new "solutions." In other words, more ways to delay the inevitable.



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