I guess Senator Harry Reid must read this blog and saw how few pending homes sales closed last month – just 21 percent (see 30 Days Later).
From Reuter’s:
The U.S. Senate voted on Wednesday to give homebuyers another three months to settle on their contracts and take advantage of a popular tax credit that sparked a rush of activity in the housing market.
The Senate, with a vote of 60-37, accepted an amendment by Democratic Leader Harry Reid that extends the closing deadline to Sept. 30 for buyers who met the April 30 deadline to have a signed contract.
The current deadline requires buyers to close by June 30 to get the $8,000 tax credit for first-time homebuyers. Existing homeowners buying a new primary residence are eligible for a $6,500 credit.
Reid offered the measure as an amendment to a bill that would extend some popular business tax breaks and extend unemployment insurance benefits for jobless workers.
The proposal would not have a significant impact on future home sales as the extension would be only for home buyers who already had a contract in hand by April 30.
The popularity of the tax credit has caused some anxiety because settlement offices are inundated with buyers trying to close on transactions by the end of this month to get the tax break.
MikeZ
The extension is very good news for buyers who signed before the April 30 deadline but are having problems closing by June 30.
The original sign-by date is unchanged, April 30, so this should have no impact on June’s numbers; all qualifying buyers inked their deals 3 mos. ago.
lurker
uh….yeah. That’s what the article says. Thanks for re-reading it to us. MikeZ, Master of the Obvious…………..
Catherine
Oh brother…
inclinejj
More smoke and mirrors
DonC
It’s just a technical change. No significance other than to give some an opportunity to hyperventilate one more time.
Perhaps of more interest is this article about how buyers are walking unless they get the “perfect” deal.
http://www.nytimes.com/2010/06/17/business/economy/17slump.html?hp
nancy killian
Nice post. Just putting it out there, if you need a yacht transporter, look up Yacht Exports. They do a great job.
MikeZ
Lurker, you’d be amazed how many people here misread what’s actually written or posted. It’s important to reiterate key points … before June’s numbers get dismissed because “the market is being manipulated by the government extending the tax credit.”
Sully
MikeZ, call it what ever you want. The politicians are trying to get re-elected pure and simple. They are using every smoke and mirror trick to lead people to think they are working for us, which is a joke and most people have already realized that. I actually expected them to extend the whole thing out another 3 months to cover them during the summer campaign, the surprise was they just extended the June 30 date out 3 months, not much but will help the two or three that got caught in a bind in the closing minutes.
bob_c
mike z is correct…the headline is misleading
(although correct).
now the bigger picture—debt and austerity
my dad is a prime example…..he has had a 30 year
party during retirement, but the nest egg is rmnning out too fast, because it hasnt grown in the last ten years (actually it has if count dividends). he’s kinda angry that he has to cut his free for all spending and blames bush.
since when do people (mainly americans) EXPECT and
rely on 5, 6 …10% return on their investments?
look at the TIPS market—the 5 year is yielding
approx .35% over the published rate of inflation
(that is correct .35 NOT the 3.5% americans have
come to demand). thus a 5 year TIPS returns nothing (because the reported rate of inflation
is considered slighly understated)
the bond markets are TELLING everyone—-there will be no real inflation adjusted rate of return for FIVE years on your money…..so why can’t we just apply that to REAL ESTATE (and all other asset classes) and realize THAT TIMES HAVE CHANGED …. at least for the next five years.
I expect NO appreciation on my home (in line with
alternate investments) but the beauty of an
owner occupied SFR..i get to enjoy it. Buy the home you want (get the best deal you can) and forget about appreciation…THAT 30+ YEAR RUN IS OVER—CHANGE YOUR EXPECTATIONS.
bob_c
my bad, the 5 year TIPS is yielding .26% (just checked)—the 5 year treasury is yielding 1.98%
(thus the implied rate of inflation is 1.72% for
5 years)
wheres the days of 6% money market????????
bob_c
thus, for at least 5 years the markets are telling us there will be NO return
that changes retirement plans and with the deficits that will further push back the nirvana
called ‘retirement’
austerity is upon us and people will have to make
money the old fashioned way —- “earn it”
(not steal it like that brokerage commercial)
Sully
One has to wonder whats in store for this country in the future. People having to work for a living, not relying on their houses to double in value in 3 years. Actually saving money, not using the credit card and home equity line of credit. Might be too much to handle! 🙂
DownButNotOut
BobC….TIMES HAVE CHANGED …. at least for the next five years.
It maybe longer than that. The correct statement is ‘TIMES HAVE CHANGED… PERIOD!’ This cycle we are into when it comes to government oversight and spending is going to go on for a long time. Look at history – we continue to spend more on a per person basis each and every year. Yet I don’t see government getting smaller to adapt to these hard times. In fact the opposite is true – create more government jobs to regulate the new gifts we are receieving.
The answer now can only be to tax more. And when this happens again in the future, we’ll come up with that same answer. And we’ll take it like the sheep we are.
DonC
Bob — Usually the number for net net returns — after inflation, commissions and taxes — would be 2% or maybe 2.5%. People have these double digit returns in their heads but that’s not realistic.
DBNO – You’re right that voters get what they want. For almost twenty years what they’ve wanted is a free lunch. Excluding the stimulus spending, voters get government benefits that cost 26% of GDP. Collectively they pay 19% of GDP in taxes. The 7% between these numbers is the “Freeloader Gap” — the amount of GDP they want as services but don’t want to pay for.
Politicians have just responded to the desire for a free lunch by promising that you can cut taxes and increase spending without increasing the deficit. As Dick Cheney so famously said when irked at Paul O’Neill’s complaint that the tax cuts were sending the deficits out of control, “Paul, Ronald Reagan proved deficits don’t matter.” (Then Cheney fired him). What he meant is that the best way to win elections is to cut taxes and then go on a spending and borrowing spree, after which you go on another spending and borrowing spree.
And he was right. Given that Medicare, Social Security, and Defense account for 70% of the federal budget, the only way to balance the budget without tax increases is to cut SS, Medicare, and Defense by about 30%. Do you hear any politician, and I mean any, including every last one who rants about the deficit, suggesting that? Of course not. That would be political suicide. What they offer is the Kook Aid narrative that all we have to do is eliminate “wasteful spending”. Right.
smarten
DonC –
“Do [I] hear any politician…suggesting…to cut SS, Medicare, and Defense by about 30%?” I don’t know about defense but insofar as the first two are concerned, yes – Sharron Angle who’s running for the senate from Nevada opposite Harry Reid.
Reno Chiropractor
Thanks for the useful information, my sister is in the process of buying a home here in Reno and I know that she will be happy to hear that she has a chance at the tax credit. Thanks again.
Guy Johnson
Reno Chiropractor,
Had she already entered into a contract by April 30th. If so, then the extension will apply to her.
DownButNotOut
DonC- Not true – You’re making it sound like the same people that get the 26% are the same ones paying 19%, which is false. What is more true the people getting the 26% continue to vote for it and want more. And this will contiue, as it has until we get to a tipping point, a la City of Vallejo or Greece.
The rest I agree with what you wrote with this exception; using the term tax cuts as a singular term. There are good tax cuts that stimulate the economy, and there are bad tax cuts that just take away from the needy.
This is similar to our previous discussion about how everyone now wants government regulation when it comes to drilling, and countering that by saying it’s the same people that wanted less government intrusion in our lives in general.
Yes- there is good government oversight and bad government oversight. I just no longer trust my government to be able to distinguish the difference.
Sam
Hey who says Nevada is never Number One in any survey or study?
Nevada’s unemployment rate for June was 14%, Number One in the Nation!!
Add in all the people who have just stopped looking for a job and thus are not even counted, and all the underemployed people now working 20 hours when they used to work 40, and we are around 20%.
Yea Nevada!!
DonC
DBNO – There is no realistic way of really of telling if the people are the same or not. For example, does Bill Gates benefit more than a homeless person from defense expenditures? Most people would say “yes”, but you could say “no”. In any event it doesn’t matter. As a politician you get the votes from one group by promising tax cuts and votes from the other group by promising benefits. This works so long as you can sell the idea that deficits don’t matter.
smarten — You are making my point here. Harry Reid says she supports cutting SS and Medicare. She says that’s a distortion and that she completely supports full payments for everyone in the system. What she’s saying is that she fully supports SS and wants SS to be a “lockbox” that the government can’t touch. http://mediamatters.org/research/201006140010
This may be completely hypocritical — maybe she does want to cut — but what she really wants is to win, and she’s not going to win if she advocates cutting SS and Medicare. So want you’ll get is the usual BS about cutting taxes and protecting seniors. Basically the standard “Spend and Borrow” platform based on the standard Kool narrative.
DownButNotOut
DonC -‘Given that Medicare, Social Security, and Defense account for 70% of the federal budget…’
Since we’re not talking about defense spending your example doesn’t make sense. We’re talking about the other 26% (using your figures). So there is certainly a realistic way to tell if the people are the same or not – Bill gates isn’t getting the handouts that the homeless person is entitled to. That’s my point.
What we agree on is that if a person counts on an entitlement he/she will vote for whoever will continue that program. Similarly, if you are above monetary concerns, like a Hollywood movie star or even a Bill Gates type, you likely will be be voting for the same person, for your own humanitarian reasons and the fact it doesn’t affect your lifestyle anyway.
It’s all of us in the upper middle area that are being squeezed for the money to pay these programs.And that group can’t continue to support the program for much longer.
smarten
Question DonC –
If “Medicare, Social Security, and Defense account for 70% of the federal budget,” what additional percentage is represented by servicing the debt [at today’s almost zero interest rate]? And assuming that rate increases to let’s say 6%, what percent of that federal budget will that amount to? And assuming the debt increases [for Obamacare or whatever], as nearly everyone predicts it will, what percent of the federal budget will that represent?
What I’m trying to say is that right now, there’s really nothing left over to service any other expenditures [like the oil spill in the Gulf which taxpayers WILL ultimately have to bear].
inclinejj
David Rosenberg, chief economist at Gluskin Sheff + Associates, wrote this morning:
“We heard from Ivy Zelman (top-rated real estate research) on Friday that the bill that included an extension for the closing date of the homebuyer tax credit fell two votes short of passing in the Senate. This virtually assures that it will not become law prior to the June 30th deadline. Ivy says that while it is difficult to quantify the impact, the fact that as of yet there is no extension, which was widely expected in this bailout nation, it could trigger a jump in cancellations beginning in July if a sizeable number of sales are not closed in time.”
DonC
smarten – It’s actually worse than you’re suggesting as we move forward. Forget the debt. And don’t worry about Obamacare. If anything it’s a small net positive. It at least contains a smörgåsbord of cost cutting options and pays for itself. The huge issue is Medicare. If it continues along its projected path it will suck up 6.5% of GDP. That’s crazy. http://www.kff.org/medicare/upload/7905.pdf
And here is the issue: “A majority of Americans say the Medicare program is very important to the
country as a whole, but most Americans do not support proposals that would increase out-of-pocket costs.” Basically people want it but they don’t want to pay for it. And so long as they believe they can get it, politicians will claim they can deliver the proverbial free lunch. If they don’t they won’t be elected.
FWIW now is not the time to be worrying about reducing spending. Now is the first time in 75 years when there is a greater risk of spending too little than too much.
DownButNotOut
DonC -Obamacare is going to cost us between 1 Trillion and 2.5 Trillion dollars over the next 10 years. You don’t think we need to worry about it?
http://www.nationalcenter.org/NPA590.html
KingBud
Anyone happen to read Art Laffer’s editorial in the wall street journal last week ?? A reminder that the Bush tax cuts expire at the end of this year. If someone already posted this, I apologize in advance.
http://online.wsj.com/article/SB10001424052748704113504575264513748386610.html
So basically in 2011 most of us will face big tax increases, particularly on dividends and capital gains but also the top marginal income tax rate.
To whatever degree corporate profits look okay in 2010, Laffer argues it reflects deliberate shifting of income into year 2010 in anticipation of next year’s tax increases. No one is expecting Obama to extend the Bush tax cuts.
So higher taxes, along with already high unemployment and bigger government. Double-dip recession starting next year, perhaps 🙁
Guy Johnson
[UPDATE] The proposed extension of the home buyer’s tax credit is still not finalized. Only the first step has been completed. As of June 16, 2010, the United States Senate passed a bill extending the deadline for closing escrow on a home buyer’s tax credit contract. The bill still needs to go to the House of Representatives and then to the President. So, the extension is not here yet, but we should know sometime this week.
MoanTage
Taxes going up in the future? That’s a no-brainer.
Let’s hear all the howling now. Americans are the lowest taxed people in the free world. Let the pissing and moaning begin…..
DonC
KingBud — Why bother cite to a “pay for opinion” idiot like Arthur Laffer. His curve has now been proved wrong so many times it’s a joke, and he’s not exactly known for being accurate. FWIW the Obama budget proposal only allows the tax cuts for households making over $200,000 to expire, and, as I’ve mentioned previously, if you’re subject to the AMT even this increase isn’t really an increase because the AMT rate is HIGHER than the new rate.
But he does play an important part in the Kool Aid Narrative which allows everyone to think they can get a free lunch. His contribution is to provide a patina of intellectual cover for the obviously foolish claim that — and I am not making this up — that cutting taxes increases tax revenues. Which of course means that we can balance the budget by cutting taxes! Yeah. Yeah. Yeah. Less pain more gain. The free lunch has arrived.
DownButNotOut
This from Clinton’s Presidency: ‘High marginal tax rates discourage work effort, saving, and investment, and promote tax avoidance and tax evasion. A reduction in high marginal tax rates would boost long term economic growth, and reduce the attractiveness of tax shelters and other forms of tax avoidance. The economic benefits of ERTA were summarized by President Clinton’s Council of Economic Advisers in 1994: “It is undeniable that the sharp reduction in taxes in the early 1980s was a strong impetus to economic growth.” Unfortunately, the Council could not bring itself to acknowledge the counterproductive effects high marginal tax rates can have upon taxpayer behavior and tax avoidance activities’
It’s not such a hard concept to grasp.
KingBud
DonC, I’m citing Laffer because he’s an influential economist whose opinions can move the markets. That’s why the WSJ published his op-ed piece.
What he’s talking about in the WSJ op-ed is that the stock market prices equities based on expected future profits, and that the market is going to anticipate lower corporate profits in FY 2011 and beyond due to the ability of many corporations to shift income into 2010 so the income is taxed at the current lower tax rates.
By the way, Laffer curve hasn’t been rejected many times.
Actually, as long as you agree that a 0% income tax rate generates no tax revenue (because no tax is being charged), and a 100% income tax rate generates no tax revenue (because no one has an incentive to work if they have to pay all of their earned income in taxes), then the U-shape of the Laffer curve is necessarily true.
There is some tax revenue-maximizing tax rate between 0 and 100%, and that optimal tax rate is debatable and probably differs among different countries based on their citizens’ differing cultural perceptions of what reasonable tax rates should be.
Depending on where we are situated on the Laffer curve, a decrease in taxes absolutely could result in increased tax revenue (if current tax rates are relatively low) and could result in decreased tax revenue (if current tax rates are relatively high). The most recent historical support for Laffer is the Reagan tax cuts where the top marginal rate was cut from 70% to 28%, which resulted in increased tax revenues in subsequent years. The national deficits/debt under Reagan resulted from increased government spending, not decreases in tax revenue following the tax cuts.