Used Home Sales up 10%

E-mail to Congress:

Television news is reporting this morning that used home sales are up 10%. They also say that this is based on the fact that there is a home purchase federal tax credit, which expires at the end of this month.

Here we have another example of stupid government meddling, and I use the word "stupid" advisedly. People who were considering purchasing a new home have rushed into the market for purchases this month. What does this mean for the total used home market? Nothing. Those people who would have bought next month or the month thereafter will have completed their purchase this month and the market will then revert to a lower sales-level to re-establish an annual average. In effect, the government credit meddling has made the used home market a yo-yo operation; up and down. US business and the general public are very interested in stability. They will take a good bargain when they see one, but they know that an unstable market is not good for business. It is counterproductive to hiring personnel and the carrying of inventory.

This housing credit fiasco is akin to the automobile clunkers program, which encouraged people to upgrade their motor vehicles with a cash grant available for a short time. They did so and were then quite happy with the upgrades, such that they saw no need to re-upgrade in subsequent months. In effect, the cash for clunkers program created a yo-yo up and down market.

Let's take a typical hypothetical case which may make the situation clearer. I know that my computer is getting somewhat out of date in comparison with the faster models now available at reasonable prices. I have anticipated that I will purchase a new computer sometime before the end of the year. However, I just saw in the Sunday newspaper advertisements that Best Buy has a half-off sale on new computers, and the sale will last for a week. I rush down to Best Buy, lay out my credit card and pick up a new computer. I've now purchased a computer in April, which I would've bought in December. Am I still interested in buying another in December? No. In the long-term, say 10 years, I may have increased my monetary outlay for a computer by a small amount by purchasing early, but this is offset by the fact that I saved money on the sale purchase. Nothing much has changed from a monetary a point of view.

One might ask the question why Best Buy would be offering new computers on sale for half price. There could be several reasons. It might be a loss-leader to bring people into the store for other purchases, such as TVs. It could also be that the manufacturer has misjudged his inventory and is loaded with computers on which he must pay financial carrying charges. The manufacturer may have generally over-expanded and needs cash to pay his bills.

Would any of these factors apply to government? No. There is absolutely no reason why government should apply any short-term credits for the purchase of any consumer product or service. In fact, to do so, skews the market to create instability and discourage normal business investment.