First-Time Home Buyer Tax Credit - Have We Learned Nothing?

© 2009, Brandon Cornett. All rights reserved.

So, it has actually come to pass.

The $8,000 tax credit for first-time home buyers can now be put toward down payments and/or closing costs. In other words, U.S. taxpayers are now subsidizing the down payments of home buyers who cannot afford such a payment.

To which I respond: have we learned nothing?

We are still mired in the economic recession brought on by our mortgage meltdown, and we are already returning to the programs and paradigms that fueled the meltdown. Perhaps I should not find this so mind-boggling. After all, this country is notorious for having a short-term economic memory. But come on … is everyone asleep at the wheel these days, or what?

“Home ownership should be made available to everyone.” Does this sound familiar? This is what the government used to say back in the 90s, and it’s precisely the mind set that led to subprime mortgages, zero-down mortgages, and other risky lending practices. We need to accept the fact that some people simply cannot afford to buy a home. Home ownership is something you have to work hard to achieve. But here we are again, devising new methods of “creative financing” to extend mortgage loans to people who cannot afford them. We are still in the midst of a housing crisis, and we are planting the seeds for the next one. I never thought I’d live to see the day.

Business Week recently ran an article about the connection between government-subsidized down payments and foreclosure. Here’s what it boiled down to. Twice as many home buyers with government-subsidized down payments end up in foreclosure, when compared to buyers who paid their own down payments out of their own pockets. You don’t have to be an economist or a psychologist to understand the reasons for this. When you let people waltz into a home with little to no money down, you attract people who shouldn’t be buying homes.

We are trying to stimulate our housing market with the very same strategies that wrecked it in the first place.

The wheels are already in motion, so there’s nothing I can do or say to change people’s minds at this point. But five to seven years from now, when a new wave of home foreclosure sweeps across the country, at least I’ll be able to link back to this post and say “See, I told you so.”