Sean King

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Knoxville, Tennessee, United States

Friday, November 27, 2009

Charles Sizemore Makes a Good Point:

The continued fall in prices despite the increased interest is disturbing, and the tax credit has a way of understating it. Let’s think about this for a minute. At a median price of $177,900, an $8,000 credit amounts to a 4.5% discount on the price of the house. Prices have “only” officially fallen by 7.1% year over year. But if you assume that buyers calculate the affect of the tax credit into their purchase decision, you have to assume that the “real” price at which the house would have changed hands would be approximately $8,000 less. This means that, year over year, prices in the absence of the subsidy would have been down nearly 12% — a devastating blow to the typical mortgaged homeowner.

In other words, the official statistics are hiding the true extent of the decline in housing. Thanks to a government subsidy, many homes have changed hands over the last year at a price that is $8,000 higher than they would without the subsidy.

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