Think it was off 30%. Mortgage rates dropped to a new low. Builder sentiment on the decline (from last month I believe).

We all know liberal politics is feelings based but this is the most blatant admission of doing something that may be stupid because it makes some feel good that I have seen in a long time.

New contracts for home purchases in May were just released this morning. They are down 30%.

So what was the goal of this credit?

Was it to help hold up housing prices? Many people stated that as the goal. Home prices leveled off as the stock market recovered but are looking south once again. It is not conclusive yet but it doesn’t appear to have succeeded in this and its very likely that even if it did in the short term it will just go down further now once the credit is removed as evidenced by the 30% drop in new purchase contract signings in May.

Was it to jump start a recovery in housing prices? That clearly didn’t happen.

Was it to help people buy houses who otherwise couldn’t? Isn’t that how we got here in the first place? Does 8K on a 150K purchase make or break the affordability? If so, the person is cutting it too close anyway.

Was it to create jobs? Not sure how it did that other than give a few mortgage brokers and real estate agents a little extra business (of course they appear to have lost tons of business in May and probably in coming months so that doesn’t appear to have been effective).

So other than making people feel good about buying a home or making it slightly more affordable, why was this a good idea?

Ok, so lets be honest about what this was about. There are lots of things that we could help people buy or make them feel good about buying, so the idea that this was about helping people afford houses is actually pretty patently ridiculous. This was about trying to hold up housing prices and get the house prices increasing again, which would hopefully get the building cycle restarted again, get the american’s home net worth rising again, get some people back above water again, slow down the forclosure rate because of an improving housing market etc. All of those pipe dreams that stupid legislators on both sides of the isle thought this credit might help to grease the skids towards that end.

But the housing market was so drastically over-valued and the consumer is so over-leveraged, and the economy is so lacking in any strength or job growth, that the idea that a measly little housing credit can just cut through all that its just plain preposterous to even suggest this could ever have any meaningful impact. In reality a number of congressman probably realized it was mostly futile but it makes for good main street politics to throw some shekels back at the common man. And it was as much about that and appearing to be trying to do something as it was about anything.

All empirical data make it pretty obvious that this credit did not do anything other than waste government money.

It’s rare that one can say with confidence that “most economists” agree about something. But in this case most economists agree this tax credit was a bad idea to begin with.