December Home Sales Plunge

"Cash for clunkers" house version. What else would you expect?

According to the National Association of Realtors, December sales of existing homes dropped by 16.7%, the largest monthly drop in more than 40 years.

December home sales down nearly 17 percent (1/25/2010 AP via Yahoo Finance)

"WASHINGTON (AP) -- Sales of previously occupied homes took the largest monthly drop in more than 40 years last month, sinking more dramatically than expected after lawmakers gave buyers additional time to use a tax credit.

"The report reflects a sharp drop in demand after buyers stopped scrambling to qualify for a tax credit of up to $8,000 for first-time homeowners. It had been due to expire on Nov. 30. But Congress extended the deadline until April 30 and expanded it with a new $6,500 credit for existing homeowners who move.

"The report "places a large question mark over whether the recovery can be sustained when the extended tax credit expires," wrote Paul Dales, U.S. economist with Capital Economics. "

Really? You don't say... Who could have known?

But the article continues, and concludes with a positive declaration that the worst is over:

"Despite fears that home prices are starting to fall again, some analysts still believe the worst is over.

""We do not believe it is fair to consider this a double dip in the housing market," Michelle Meyer, an economist with Barclays Capital, wrote last week. "The recovery is still under way, but hitting some bumps in the road.""

All that "cash for clunkers" program did was to pull the demand forward (see the chart). The auto sales plunged over 30% in September 2009 when the program ended. Many people had predicted that the tax credit for the first-time buyers would simply pull the demand forward. And it did, plus more: it put more people into the large debt (mortgage debt to buy the house), much larger than the auto loan under the cash for clunkers program.

There will be more struggling homeowners that the government gets to save.

There's a name for this kind of behavior - inflicting pain and suffering on others so that you can save them. It is called "Munchhausen Syndrome by proxy".

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Homebuyer Tax Credit Outperformed Cash for Clunkers

a huge negative bang for the money...

$8,000 homebuyer tax credit offered by the Obama administration is "exceptionally inefficient", costing taxpayers $80,000 per every additional house sold, according to an analyst at Stifel Nicolaus & Co.

That's quite a negative bang for the money. If you recall, $4,000 cash for clunkers cost taxpayers $24,000 per every additional car sold. This homeowner tax credit program is vastly outdoing the cash for clunkers in terms of loss for the U.S. taxpayers.

Homebuyer Tax Credits ‘Exceptionally Inefficient’: Chart of Day
(David Wilson, 1/7/2010 Bloomberg)

"Tax credits designed to revive the U.S. housing industry are costing taxpayers as much as $80,000 for every additional home sold, according to Michael R. Widner, a Stifel Nicolaus & Co. analyst.

"The federal program is “an exceptionally inefficient use of tax dollars,” Widner wrote yesterday in a report. He estimated the total cost through last November at $17 billion, “a high price to us for relatively little benefit.”

"The CHART OF THE DAY shows existing-home sales would have fallen at a 2 percent annual rate in the three months ended in November without the credits, based on his estimates. Instead, the pace rose 28 percent, according to data from the National Association of Realtors. Resales accounted for 92 percent of homes sold during the past 12 months.

"Widner estimated that 1.83 million new and existing homes were sold to first-time buyers last year through November, and only 303,000 of them changed hands because of the tax benefit. The $80,000 figure reflects his assumption that 30 percent of the added sales would have been made this year, not in 2009."

In other words, 70% of 303,000 houses changed hands in 2009, for $17 billion tax credit. That is indeed $80,000 per additional house.

Talk about taking the money from the poor and give it to the rich. In this case, take the money from the taxpayers who have little to no political clout, give it to the housing industries with huge lobby and political connections.

That's the way the (government) money goes, pop goes the weasel...

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Government's Idea of "Bang for Money"

is no bang at all, for taxpayers.

Take the cash for clunkers program. According to Edmunds.com, the program which cost $3 billion generated 125,000 additional sales. That's $24,000 per car. (See my previous post.)

Ford Fusion, one of the popular "cash for clunkers" cars, could be had for that amount. There is no "bang" in here. The government might as well have bought cars from GM, Chrysler and Ford outright. Better yet, buy them on loans so that Goldman Sachs or Morgan Stanley can securitize the loans and sell the newly created securities to pension funds and university endowments as a very safe investment. If they becomes risky in any way, the Federal Reserve will step in and buy those securities to support the market. (Now that's a bang for the money.)

One of the unintended (and totally foreseeable by many, many people) consequences of this program is the higher used car prices, as totally good, operational cars and trucks are being scrapped instead of going into the used car market. Thank you, Car Salesman in Chief.

Or take the House 1990-page bill on health care "reform" which debuted with fanfare today. According to Congressional Budget Office (which by the way is not known for over-pessimism), the "reform" will cost $1.055 trillion dollars over the 10 years to insure additional 35 million people. That's over $30,000 per person.

In exchange, the government gets to have more bureaucracy they love, get to play in more committees and round tables and working groups, have access to everyone's bank accounts and personal information, set IRS for offenders, decide who gets treatment when and how, and collect taxes on medical devices that may include Q-tip and tampons, again (I'm yet to take a peek at this monstrosity of a bill). O what fun, what fun!

Ohhh, I get it. The government will have a bang, a great time, by sucking up the money from taxpayers who don't get to participate in the fun (or whose idea of fun is totally different from the government bureaucrats and legislators).

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Cash for Clunkers: Taxpayers Cost Was $24,000 Per Car

according to Edmunds.com. The administration ridicules.

Well, my vote is for Edmunds.com.

Clunkers: Taxpayers paid $24,000 per car
( Peter Valdes-Dapena, 10/29/09 CNN)

"NEW YORK (CNNMoney.com) -- A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com.

"Still, auto sales contributed heavily to the economy's expansion in the third quarter, adding 1.7 percentage points to the nation's gross domestic product growth.

"The Cash for Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.

"The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales."

The administration tries to paint it as if Edmunds.com is a "naysayer" (a new dirty word these days for this administration):

""It is unfortunate that Edmunds.com has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone," said Bill Adams, spokesman for the Department of Transportation. "There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most."" [emphasis is mine]

I thought the cash for clunkers program was all about "fuel efficiency" and "environment". (At least it was sold as such.) So now they are openly saying it was to prop up car dealers. And remember this cash for clunkers program was announced right after a boatload of GM and Chrysler dealers got axed under allegations that the dealers who donated to Republican party were targeted.

(That actually reminded me of Bear Stearns under severe liquidity crisis being forced to sell itself to J.P. Morgan Chase for $2, only to have the Federal Reserve open the discount window to investment banks after the fire sale was official. Nice job, Tim [Geithner].)

Anecdotal evidence suggests that the dealers marked up the cars eligible for the rebate, sometimes even higher than MSRP, then they gave a token discount if at all.

So who got the short end? Taxpayers who had the honor to fund the program to the tune of $24000 per car. But if you take a look at this chart from St. Louis Fed, you'll see it's Edmunds.com who is right. The vehicle purchase collapsed back after the program. All it did was to bring forward the demand that existed anyway without the program.




Auto sales heavily aided by the cash for clunkers program contributed 1.66% to the total GDP growth of 3.5% for the 3rd Quarter. If you subtract this 1.66% and other government spending from the 3rd Quarter GDP, it would have been flat at best.

I personally would have liked to see the GDP flat to ever so slightly positive without the government intervention that distorted the picture so much to render it worthless.

The CNN link above also contains a video interview of ex-Car Czar Steve Rattner, of Quadrangle fame. (What an insult it must have been for Rick Wagoner to be fired by a person like this.)

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NY Car Dealers Pull Out of Cash for Clunkers Program

Just as I heard on the radio that it might happen. I wrote in my post on Friday August 14, that:

"A local radio show host gave another possible reason this morning. He was talking about the cash for clunkers program and how cumbersome the program was for the car dealers. According to this radio show host who talked to enough number of dealers in the area, the participating dealers have had their cash for clunkers applications (40-page long) returned, because of some minor error here and there. Instead of correcting only those errors and re-submitting the applications, the dealers have to restart the application process from the scratch.

"It seems that the government computers are still mainframe computers from 1970s.

"Maybe it is a matter of time before the dealers say "@#$% it, it's not worth anyone's time.""

Well, the time seems to be now.

NY dealers pull out of clunkers program (8/19/09 AP via Breitbart.com)

"Hundreds of auto dealers in the New York area have withdrawn from the government's Cash for Clunkers program, citing delays in getting reimbursed by the government, a dealership group said Wednesday.

"The Greater New York Automobile Dealers Association, which represents dealerships in the New York metro area, said about half its 425 members have left the program because they cannot afford to offer more rebates. They're also worried about getting repaid.

"The program offers up to $4,500 to shoppers who trade in vehicles getting 18 mpg or less for a more fuel-efficient car or truck. Dealers pay the rebates out of pocket, then must wait to be reimbursed by the government. But administrative snags and heavy paperwork have created a backlog of unpaid claims.

"Schienberg [the Association's president] said the group's dealers have been repaid for only about 2 percent of the clunkers deals they've made so far.

"Many dealers have said they are worried they won't get repaid at all, while others have waited so long to get reimbursed they don't have the cash to fund any more rebates, Schienberg said. "

With the government computer system that forces the dealers to re-submit a new application from scratch if there is ever a slight mistake in the original application, it shouldn't be a surprise that the dealers haven't seen much money and that they are pulling out. It's so unbelievably mainframe process and mentality it's hard to believe it is the work of supposedly tech-savvy Information czar and Technology czar of the administration. (Maybe it isn't, I don't know. )

This pales in comparison to what the health care "reform" would require in terms of information technology and system. Good luck with that, if the Congressional Democrats actually "go it alone".

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Cash For Clunkers Interest Fades

A fine example of how a government program works (or doesn't work).

Interest Fizzles in Cash for Clunkers (8/14/09 Newsweek)

"What started with a bang could end with a whimper. The government's cash-for-clunkers program was a smash out of the gate. People stampeded showrooms after its late-July launch to trade in an old car or truck for a check of $3,500 or $4,500 to put toward buying a new, more fuel-efficient vehicle. But since the early days of the program, interest is fading."

Well, that was quick. Inquiring minds want to know why (if only to be polite).

"Carmakers would be happy to build more compact cars and family sedans, if that's the only thing slowing the success of the program...

"But Edmunds.com, which tracks vehicle pricing and buying data, says there's something else at play. When the public thought the program would cease after the first $1 billion was spent, it rushed to dealerships. Now that there is more money, there's no urgency to get there. In fact, car shopping on the Web that is tied to the clunker program is down 15% from its peak. By Aug. 20, we could be back to pre-clunker sales levels, Edmunds.com says."

A local radio show host gave another possible reason this morning. He was talking about the cash for clunkers program and how cumbersome the program was for the car dealers. According to this radio show host who talked to enough number of dealers in the area, the participating dealers have had their cash for clunkers applications (40-page long) returned, because of some minor error here and there. Instead of correcting only those errors and re-submitting the applications, the dealers have to restart the application process from the scratch.

It seems that the government computers are still mainframe computers from 1970s.

Maybe it is a matter of time before the dealers say "@#$% it, it's not worth anyone's time."

The interesting part of the article for me is the next to last paragraph [emphasis is mine, my comment in italic]:

"J.D. Power & Associates (which, like BusinessWeek, is owned by The McGraw-Hill Companies (MHP)) thinks that most of the cars purchased through the program were simply sales that would have happened this year but were pulled ahead a few months. [yeah who could have known?] The company believes as few as 20% of the cars bought in the program are really new sales to the market. That means as many as 80% of the cars would have been sold this year anyway, says Gary Dilts, president of J.D. Power's auto industry group. That means that there will likely be payback with some slower sales months after the program expires."

So, this $3 billion (taxpayer-funded) cash for clunkers money provides for 750,000 new cars and trucks and SUVs, and only 20% of these are new sales to the market. That means the government is pouring $3 billion to generate new sales of 150,000 cars/trucks/SUVs.

That's $20,000 per new sales.

I don't know the average price of cars/trucks/SUVs purchased, but let's see, according to US News and World Report Rankings & Reviews,

• Ford Escape average price paid: $18,197 - $24,678
• Ford Focus: $13,561 - $15,891
• Jeep Patriot: $16,346 - $22,204
• Dodge Caliber: $15,517 - $23,224
• Ford F-150: $19,055 - $38,709
• Honda Civic: $13,761 - $21,568
• Chevrolet Silvarado: $17,826 - $36,815
• Chevrolet Cobalt: $14,179 - $21,547
• Toyota Corolla: $14,316 - $18.101
• Ford Fusion: $17,495 - $25,031

The government could have simply purchased 150,000 brand-new small cars (they can be had for much less than $20,000) and spared the dealers the headache and paperwork, saved at least part of consumers who bought from going deeper into debt.

Better yet, they could have turned around and sold them to the public at a later date at a small discount, and recouped most of the money spent.

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Cash for Clunkers Government vs Edmunds

Trucks win in Cash for Clunkers game (8/7/09 CNN)

"What are people trading their clunkers in for? It depends on who you ask.

"The government's results showed small cars as the top choice for shoppers looking for Cash for Clunker deals. But an independent analysis by Edmunds.com disputed those results, and showed that two full-size trucks and a small crossover SUV were actually among the top-ten buys.

"The discrepancy is a result of the methods used. Edmunds.com uses traditional sales measurements, tallying sales by make and model. The government uses a more arcane measurement method that subdivides models according to engine and transmission types, counting them as separate models." [emphasis is mine]

I see. The government's method was certainly not what I had expected.

So here's top 10 list, the government version and the Edmunds' version:


5 of top 10 are crossover SUVs and trucks, according to the Edmunds' version.

The article continues:

"Sales of GM's Silverado truck, under the government's counting method, were divided among five different versions. So were the Ford F-150s. If the different versions of these trucks were considered the same vehicle, as auto sales are normally reported, sales of these trucks would look much heftier."

I'm sure it's just the matter of the government's bureaucratic, arcane way of counting, and NOT about presenting a convenient result to protect the perception that this program is (supposedly) about "protecting the environment".

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Cash For Clunkers Top 10 Best Sellers

Obama administration withholds data on clunkers (8/4/09 AP), but it seems the money, so far $1 billion and probably additional $2 billion, is benefiting foreign car manufacturers.

"WASHINGTON – The Obama administration is refusing to quickly release government records on its "cash-for-clunkers" rebate program that would substantiate — or undercut — White House claims of the program's success, even as the president presses the Senate for a quick vote for $2 billion to boost car sales.

"Transportation Secretary Ray LaHood said Sunday the government would release electronic records about the program, and President Barack Obama has pledged greater transparency for his administration. But the Transportation Department, which has collected details on about 157,000 rebate requests, won't release sales data that dealers provided showing how much U.S. car manufacturers are benefiting from the $1 billion initially pumped into the program."

So much for transparency.

From this AP article and this from Bloomberg and this from Bestsyndication.com, here's what I've gathered:

Top-10 list (from bestsyndication.com)

1) Ford Focus
2) Toyota Corolla
3) Honda Civic
4) Toyota Prius
5) Toyota Camry
6) Ford Escape
7) Hyundai Elantra
8) Dodge Caliber
9) Honda Fit
10) Chevy Cobalt

• No. 1 in two-seater category is Daimler AG's Smart, followed by GM's Solstice (Pontiac) and Sky (Saturn).

No information whatsoever about the number of cars sold or where these cars are made (could be the U.S., could be Mexico, Canada, Brazil...).

And this is a lame comment from the White House Press Secretary yesterday (8/4):

“... the statistics that I had mentioned yesterday, I mean, 47 percent of the cars sold were from the Big Three, which was slightly larger than their current market share of 45 percent.”

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Cash For Clunkers To Be Suspended (Already?)

Welll, that was quick. The program started just last Friday.

AP sources: Govt to suspend 'cash for clunkers' (7/30/09 AP)

"The government plans to suspend its popular "cash for clunkers" program amid concerns it could quickly use up the $1 billion in rebates for new car purchases, congressional officials said Thursday.

"The Transportation Department called lawmakers' offices to alert them to the decision to suspend the program at midnight Thursday. The program offers owners of old cars and trucks $3,500 or $4,500 toward a new, more fuel-efficient vehicle."

"A survey of 2,000 dealers by the National Automobile Dealers Association found about 25,000 deals had not yet approved by NHTSA, or nearly 13 trades per store. It raised concerns that with about 23,000 dealers taking part in the program, auto dealers may already have surpassed the 250,000 vehicle sales funded by the $1 billion program."

About the only "stimulus" money that has worked and it's suspended in one week. And lawmakers want more money to keep it going.

"Even before the suspension, some in Congress were seeking more money for the auto sales stimulus. Rep. Candice Miller, R-Mich., wrote in a letter to House leaders on Wednesday requesting additional funding for the program.

""This is simply the most stimulative $1 billion the federal government has spent during the entire economic downturn," Miller said Thursday. "The federal government must come up with more money, immediately, to keep this program going.""

Ummm, I don't know about that. My car is an old SAAB (1988) but it gets too good a mileage and does not qualify. My truck is even older but it gets even better mileage. So, as a taxpayer, I get to fund this program, with no personal benefit. There's no incentive for me to keep it going.

Alternatively, since this program was attached, for some unknown reason, to H.R. 2346 "Supplemental Appropriation Act of 2009", maybe the government can ditch some of the projects in the bill and fund the cash for clunkers. My suggestion would be:

• Ditch the new embassy in Af-Pak and save $1 billion
• Let the World Bank fight the world poverty on its own and get that $3.7 billion
• Don't assist Jordan, Lebannon, Egypt and Israel, and save about $1 billion
• Don't assist IMF and get that $7.6 billion

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