As he campaigns in Arizona and New Mexico, Bush has been touting his tax cuts as the “engine” for rising home sales. Paul Krugman will undoubtedly deconstruct this for us next week, but it seems obvious to me that tax cuts have nothing to do with rising homeownership. As everyone knows, the rate of housing sales respond much more strongly to mortgage interest rates than any other factor. With the Fed keeping interest rates chained up in the basement, mortgage rates are at the lowest rates since the late 1950’s.
Which means that many people can afford houses that previously couldn’t, with the same size down-payment. It means that people who own a home can sell it more easily and afford a better home. It means that people can do well by refinancing their existing homes. All of which is obvious, even to us non-economists.
This is really kind of pathetic — Bush is grasping at straws trying to paint a rosy picture of how he’s helped ordinary Americans economically. But sadly, Kerry hasn’t been doing much better lately, offering economic plans for which the arithmetic just doesn’t add up. Bush is clearly vulnerable, but not if the challenger can’t get it together.