by Calculated Risk on 9/28/2009 11:14:00 PM

Here are some unintended consequences ...

According to the NAR, the "first-time" homebuyer tax credit will lead to an additional 350 thousand homes sold in 2009. As I've mentioned before, this tax credit is inefficient and poorly targeted, costing taxpayers about $43,000 for each additional home sold.

And where are those 350 thousand buyers coming from? My guess is most were probably renters (a few might have been living in their parent's basements!).

Click on graph for larger image in new window.

And what will be the impact on the rental vacancy rate?

The rental vacancy rate was already at a record 10.6% in Q2 2009. Some quick math suggests the tax credit will push the national vacancy rate above 11% soon.

And that means even more pressure on rents (rents are already falling). This is good news for renters, but this will also lead to more apartment defaults, higher default rates for apartment CMBS, and more losses for small and regional banks.

And falling rents are already pushing down owners' equivalent rent (OER), and my guess is OER will probably turn negative soon. Since OER is the largest component of CPI (and almost 40% of core CPI), this will push down CPI for some time.

Extend the tax credit and we might be looking at the core CPI showing deflation. Welcome to the Fed's nightmare.