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Why are home sales plummeting?

Why are home sales plummeting? On the surface, it is because the government’s tax-credit for first-time home buyers lapsed in April. It takes a couple of months lag-time between buyer purchase decisions and the actual close of escrow, and so the expiration of the tax-credit is just now hammering the market. And there is a huge backlog of housing stock. And sellers are holding out hope that they can get close to peak prices for their homes, while buyers believe that prices will fall further – and so are waiting until prices decline further. But there is a more fundamental reason that home sales are plummeting. Specifically, when housing crashed in 2007 and 2008, the government had two choices. It could have: (1) Tried to artificially prop up housing prices or (2) Created sustainable jobs, broken up the big banks so that they stop driving our economy into a ditch, and restored honesty and trustworthiness to the economy and the financial system. All this would have meant that the economy would recover, and people would have enough money to afford to buy a new house. (See this). The government opted to try to prop up prices.


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