Is Fed’s Homebuyer Credit a Long Term Problem?

As with everyone else over the last eight months, I was closely following the federal government’s attempts at bolstering the construction and real estate industries, and I have read many enlightening commentaries both for and against stimulus.

As can be expected, Realtor associations as well as construction industry associations were quite pleased with the affects of the $8,000 new homeowner tax credit stimulus, and in the months of October and November, many regions across the country saw their first increases in existing home sales in nearly a year.  If the tax credit had continued to show the results it had in those months, experts were saying that excess home inventory would be cleared by summer, opening the door to new construction for construction companies once again.  This was very welcome news to the millions of Americans who rely on their contractor’s license for a living.  But, are the jobs which were created by this new construction really meaningful to our economy’s long-term recovery?

Most economists say no, the tax credit was just a finger in the dyke, and the underlying problem is the United States’ lack of national product production, our worker unemployment, and our enormous national debt.  Until these underlying issues are addressed, all efforts at stimulating the economy are analogous to minimum monthly payments on a huge, variable interest-rate loan.  At some point we will have to face the music, and it won’t be pretty.

Yet, a few experts are saying that the real benefit of the tax credit was not in its first order effect, but rather in the third and forth order effects it has on inspiring faith in the US economy so that investors will be willing to invest once again and money will begin to flow as it did 5 years ago.

Only time will tell if the tax credit was just a band aid, or if it will truly contribute to the return of sustainable prosperity for US builders.

————————————————-

Josh Groves is a contributing author on Constructonomics and President of jobtrio.com, the largest directory of construction contractors on the web.

Tags: Construction blog, Construction Economics, Homebuyer tax credit