Macroeconomics 01, MWF 9am:

            Assignment 3.1, Due Monday, August 30

            Assignment 3.2; Due Wednesday, Sept. 1

Macroeconomics 02, TTh 9:30am:

            Assignment 3.1, Due Tuesday, August 31

            Assignment 3.2; Due Thursday, Sept. 2

Macroeconomics 03, TTh 12:30pm:

            Assignment 3.1, Due Tuesday, August 31

            Assignment 3.2; Due Thursday, Sept. 2

            __________________________

Microeconomics 01, MWF 11:00am:

            Assignment 4.1, Due Monday, August 30

This article from this morning’s New York Times describes the 25% drop in home sales for the month of July from the previous year.  In paragraph 2, they state:

“The steep descent surprised nearly every analyst and put the volume of single-family home sales at the lowest level since 1995.”

Apparently their analysts weren’t paying attention to last year’s Cash for Clunkers, or have never taken my Macroeconomic course.  This is a classic example of Government Involvement leading to Unintended Consequences.  The picture below is a chart of Automobile and Light Truck sales over the last few years (courtesy of the Wall Street Journal).  Now what is the first thing you notice about this graph?

Those two months in the middle of 2009 happen to be the time period in which Cash for Clunkers was running.  The program (if you’ve forgotten) allowed individuals to trade in older, less fuel efficient automobiles for a $4,000 trade in on a qualifying new car.  The idea was that this program would help boost auto sales (which it momentarily did) and at the same time encourage automakers to keep producing fuel efficient cars.  The problem with this program was that it didn’t create added demand for cars, it simply artificially pushed all new car sales into this same window of time.  The individuals who purchased these new cars were, for the most part, people who were in the market or would have soon been in the market for new cars.  The reason you have this sales spike is that it encouraged them to all purchase cars during this same time period.  After the program expired, sales dropped right back down to pre-program levels.

Today’s article in NYT, is the beginnings of the exact same issue, only with homes.  I’m willing to bet that these calculations start the day after the Home Buyer Tax Credit expired (you received up to $8,000 back in taxes if you purchased a new home).  This didn’t cause people to suddenly demand a new house, it only pushed all those individuals who would have been looking for a new house to purchase one during this artificial time period.  I’m willing to bet that a graph of home sales will look almost identical to our auto sales graph.

The syllabus I handed out today inadvertently had the Testing Dates for the online section in it.  You can ignore those dates!

Welcome back to Fall Semester 2010 at Richland Communty College!  This is the course homepage for Macroeconomics 231 and Microeconomics 232.  From this page you can navigate to Lecture Notes, Assignments, Supplemental Learning Materials and a variety of other sources.  You should take a few minutes to look around and become familiar with all the features.  This weblog is designed to make these courses much easier on you.

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This article from yesterday's New York Times discusses the financial impact of the House Buying Credit that is set to expire in a few days.  The article announces that over the course of the 8+ month program, 1.8 million homes have sold.

I'm more interested to see the impact this program will have on the final sales PRICE of homes.  In this transaction, the home seller has (potentially) more information about the value of the home than the buyer has.  If the buyer has an immediate wealth effect from the final purchase, will sellers increase the homes price above their own valuation in an attempt to capitalize/split the tax rebate with the buyer?

For example, if I have a home I want to sell; I have the most information about the true value of the home.  I have the most information on any work or reconditioning it will need.  Let's say that based on all this information, I estimate a fair market value of $150,000.  With this program, if somebody comes along and buys the house at $150,000 they would receive an $8,000 tax rebate, in essence lowering the price to $142,000.  (This isn't a precise example, because you don't receive the rebate until after closing, so think of it more like a mail-in rebate).

Knowing that the buyer is "really" only paying $142,000 for the home, will sellers include a rebate premium pricing strategy in the listing of homes.  Theoretically, they could ask for an amount up to $8,000 above what they value the home at.  The difference between the values being the split of the rebate incentive.  Realistically, the home seller has no entitlement to this rebate, but that if the rebate changes the willingness to pay that creates incentive for sellers to increase their surplus.