- The Washington Times - Thursday, September 23, 2010

Do you remember how the “cash for clunkers” program boosted new-car sales in 2009 by giving money to car buyers? In July and August of last year, the program generated an additional 360,000 car purchases in the U.S.

(Stick with me. This will be about houses in a minute.)

The problem is, most of those car purchases would have occurred later, even without the monetary incentive, according to a recent study conducted by researchers at the University of California at Berkeley and the University of Chicago. The study found a sharp decrease in car sales in the seven months after the program ended.

Get this: In those seven months, there were 360,000 fewer sales than likely would have happened if the program had not been available. So the program boosted sales by 360,000, but then sales fell by the same amount.

(Here’s where houses come in.)

Journalists who report on the housing market are telling us that sales are down 27 percent. That sounds bad. I’m not saying it isn’t. Without the proper context, however, it’s hard to understand what a 27 percent drop means.

You see, the federal tax credit for homebuyers was in effect from January 2009 through April 2010. The tax credit seems to have had the same effect on buying decisions concerning houses that cash for clunkers did for cars. It stimulated people to buy homes, myself included.

Now that the credit is gone, buyer activity has slowed. We’ll never know what today’s market would have been if the credits had never existed because the housing market is a lot more complicated than the auto business.

Nevertheless, the current slowdown surely is partly attributable to buyers making purchasing decisions earlier than they otherwise would have. It influenced me, for sure.

We also know this because of interest rates and the broader economy. Mortgage interest rates are even lower than the low rates available in 2009. And the economy is no worse than it was last year. So today’s low rates should be stimulating buyer activity, but they’re not.

I expect by next spring we’ll begin to get a sense of how the housing market looks without the negative effects of a big tax credit that has expired.

Send e-mail to csicks@gmail.com.

The statistics in this story reflect a metropolitan area that includes the Maryland counties of Montgomery, Prince George’s, Anne Arundel, Howard, Charles and Frederick; the Virginia counties of Arlington, Fairfax, Loudoun, Prince William, Spotsylvania and Stafford; the city of Alexandria, Va.; and the District.

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