When the market for a particular good or service is weak, that is an indication that many consumers are not willing to pay the price being charged for that good or service. That encourages businesses to manufacture the good or provide the service more efficiently so they can reduce prices and attract consumers.
At least that’s how it works when government doesn’t interfere.
But more than two years ago, with home sales flagging, Congress enacted a law to give thousands of dollars’ worth of tax credits to people who buy homes. That credit came at the expense of the far higher number of taxpayers who were not going to buy a home and thus could not get the credit. It also added billions to our $13 trillion national debt.
The idea behind the tax credit was that it would motivate Americans to buy more homes and would “get the economy moving.” And for a time, the $8,000 tax credit for first-time buyers and $6,500 credit for existing homeowners who buy did boost the market some.
But all that “free money” has finally come to a halt with the end of the tax credit in late April. And not surprisingly, the housing market has taken an alarming dive.
In the 47 years that the federal government has been tracking sales of new homes, the market has never been this bad. Sales fell a stunning 33 percent in May, just after the credit ended.
“This decline takes your breath away,” one housing analyst told The Associated Press.
Even government “insiders” are deeply concerned about the housing market, and admit that the government credits have not “fixed things.”
Housing is “a market purely on life support, sustained by the federal government,” Federal Housing Administration Commissioner David Stevens said at a conference in May.
That is contrary to how our free market is supposed to work — and that’s the problem. Government can temporarily create the illusion of market demand for something — such as housing or ethanol or government-run rail service — by subsidizing it with tax dollars. But all too often, when the “free money” runs out, the supposed market dries up, because the true cost of that “something” becomes apparent.
The latest housing figures are direct proof of that. And yet, does anyone doubt that very soon some in Congress will be calling for the housing tax credit to be renewed — at great new expense to taxpayers — to “boost the market” again?
The credit never should have been approved in the first place, and it certainly shouldn’t be renewed.