Homebuyer Tax Credit Helped Home Sales -- Really!
That's terrible news, or is it?
The trouble is that the economist quoted in the story is wrong. He makes a basic, quite understandable goof about the date of a deadline and then appears to base his entire dire prediction on that mistake.
The interesting thing about this story is that it may show how the bias among economists and journalists has shifted: It's now relatively easy to get published if you say something depressing about housing, even if you're wrong.
What is the reason for this bias?
First, I should prove my claim that the economist made a mistake. The HousingWire story quotes Mark Rogers, an economist with the research firm Econoday, saying that the recent boom in the demand for housing is likely to end with the expiration of a big government program, the $8,000 homebuyer tax credit.
Okay, we knew that.
But Rogers goes further. He says many of the homes that went under contract this spring "may not have closed by the required [tax credit] deadline and will never close." Pending sales in February and March spiked with what Econoday considered "last minute" buyers "hoping to leave enough time to close before May 1."
Thousands of broken contracts to buy homes would be a big blow to the housing markets. There would probably be confusion, the loss of a total of millions of dollars in down payments, and a scramble to put the homes back on the market.
These broken contracts, if they actually happened, would be grim evidence that a big government program that tried to help the housing markets, the federal homebuyer tax credit, was actually hurting people and damaging the housing markets. Economists and organizations like the Mortgage Bankers Association say the tax credit should take hundreds of thousands of homes off the market that would not have otherwise sold this year. Roger's broken contracts would have made a mockery of that.
But here's the problem: the economist got the date wrong. Most homebuyers can claim the $8,000 tax credit if they "enter into a binding contract to buy the home before May 1, 2010." But then the homebuyers have two full months to find a mortgage and close the deal -- they can still claim the tax credit if they "close before July 1, 2010," according to the Internal Revenue Service.
So even buyers who signed contracts just before May 1 will probably have time to get to the closing table by the deadline.
On Tuesday, HousingWire updated the story. The closing deadline of "before May 1" has been cut out. The rest of the story, including the frightening headline, remains the same.
We can't be sure what process produced the story, since neither the journalist nor Econoday were available for comment. However, this story reminds me of something I've found to be true over the past 10 years: Once journalists get used to saying something, we tend to keep on saying it, even after it's no longer true.
Back in the golden days of the housing boom, journalists (myself included) tended to nod seriously at any mention of the "value of homeownership." Now, in the housing crash, we all tend to frown and shake our heads over "housing hype" and the possibility of a "double-dip" in housing prices.
In reality, the housing markets have been moving sideways for almost a year. Home prices might sink a little more, but the dramatic drops of past few years seem to have eased. We seem to be scraping along the bottom of the housing crash.
But let me be the first to admit the sordid truth: Every morning I go through the news looking for the signs of some new catastrophe coming for the housing markets, just to make sure that I'll have something to write about for the day.
Judging by this story, I don't think I'm alone.