It seems that the cash for clunkers program has been a big success. Manufacturers and local dealers were all advertising the program. The program has been so successful that the government added additional funds to keep it running.
The U.S. Government's bucks for first-time home buyers (the $8,000 tax credit) has not been so successful. Although some first-time buyers in the real estate market expect to take advantage of the program, this is a rare group indeed.
While both programs were aimed at stimulating the economy, the cash for clunker program may in the final analysis have done more for the automobile industry than the bucks for first-time buyers program will have done for the real estate industry. There are several ways in which these programs differed that may have made the difference in their respective success and lack thereof.
First, the car companies figured out how to give buyers the incentive at the dealership when the buyer purchased the car. While the real estate companies didn't figure out how to give home buyers the incentive at the settlement table. Getting the incentive at the "table" in a world of instant gratification versus having to wait to file your income tax is a much better solution. Instant versus deferred. Now or at tax time. Draw your own conclusions.
Second, the cash for clunkers rebate - between $3,500 and $4,500 - must be used to purchase a vehicle less than $45,000 - that's a $1 to $10 ratio. Should that same incentive been offered to first-time home buyers, $4,500 would have barely made a dent in the cost of residential real estate - which is what $8,000 barely does. In Baltimore-metro regional area where the average price of a home was $297,948 in July 2009, a $4,500 credit would have been equal to a $1 to $66 ratio. If the credits were leveled, a first-time home buyer might have received $29,795 at the settlement table - that could have easily covered closing costs and down payment with a little left over for new living room furniture!!! Kind of like $4,500 does for a car ... $2,000 down, tax and tags, and maybe a leather interior upgrade!!!
Third, anyone - with the right car - could take advantage of the cash for clunkers program but not so with the bucks for first-time home buyers. It seems like almost anyone might have a car that would meet the clunkers program quidelines, while it seems less likely that someone hasn't owned a home in the last three years in order to secure a $8,000 tax credit incentive for buying a home.
Since the cost of a new car is between $20 and $30 thousand dollars and a home is between $200 and $300 thousand dollars, cars are simply more affordable right now than homes - certainly so with such a large incentive. So the way I read it is that consumers spent their money buying new cars rather than buying new homes. What's it going to take to get buyers off the sidelines and into a new home?