Remember when the government subsidies for buying new cars ended and car sales tanked? Looks like we’re seeing the same thing in the housing market. It shouldn’t be surprising that Mortgage Purchase Applications Plummet As Tax Cuts Expire because when you subsidize an activity, you get more of it. When you take that subsidy away, you get less of that activity.
This is a pretty good indicator because the number of refinances rose 14.5%, while applications for new home purchase dropped 20% over the previous month. Rates are still very low, so it’s a logical conclusion that people are no longer as motivated to buy a house since the new home buyer tax credit expired in April.
In fact that is the conclusion of the Mortgage Bankers Association:
” The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season. In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009,”
This is exactly why government subsidies and stimulus don’t work. They only provide artificial economic activity over the short term, but they cannot correct for imbalances in the market. They cannot prevent a recession or a pullback in economic activity, they can only postpone it.
Things have been looking good lately – on the surface. But how much of that economic “recovery” has been an illusion created by stimulus spending that only masks the underlying problems?
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[...] not an expert or an economist by any stretch, but even I called this back in May! I don’t point that out to say “I told you so,” rather to illustrate [...]