Looking for the bright side
Yesterday’s news was depressing. Existing home sales and unemployment claims both sank to new lows.
In June, sales of previously owned homes fell 2.6 percent from May -- more than double the 1 percent decline economists had expected. (Sales were 15.5 percent lower when compared with the June 2007, according to the National Association of Realtors.)
And the Associated Press reported that the last time there was a higher number of jobless claims was after the Gulf Coast hurricanes in 2005.
For those looking for some slightly less grim news, it might be worth your while to read Ron Lieber's “Your Money” column in today’s New York Times pointing to highlights of the housing rescue bill, which the Senate may vote on tomorrow.
The bill doesn't just bailout Freddie Mac and Fannie Mae. Among other things it includes a tax credit of up to $7,500 for some first-time buyers; an additional $500 to $1,000 deduction for homeowners who don’t itemize; and limits on origination fees for reverse mortgages.
It also provides protection for veterans. Under the bill, lenders must wait nine months -- not 90 days -- before they can begin foreclosing on a returning soldier’s home.
Though there are many stipulations for each provision, they are intriguing. As someone who hopes to buy a home in the next year, I see the first-time buyer credit as possible incentive to act. And the NAR also apparently sees the bill as helping drive first-timers into the market. “With many potential first-time home buyers on the sidelines, a first-time buyer tax credit would have a significant positive impact on both housing and the economy,” said Lawrence Yun, NAR’s chief economist.
I know we've discussed the bailout bill before, but not these particular provisions. Does any else see any potential good coming from these incentives?
Enjoyed this post? Get blog updates delivered to your reader. Click here.
Comment
Permalink
Email
The first time homebuyer credit looked great until I realized it phases out at an AGI of $70,000 for single people (and $140,000 for married). In markets where the entry point is $400,000 a single person who can afford that mortgage makes more than $70K and thus would not be eligible. But I could see how this *would* help a married couple.
Hmm, it's been a couple of days. I guess almost nobody does "see any potential good coming from these incentives" in the Fannie/Freddie bailout. I certainly think that any bits of good, such as the one mentioned by Renter, will be dwarfed by the bad coming out of this bill. Hope I'm wrong, but brief upticks in optimism aside, housing prices simply have to come in line with the tried-and-true verities of ownership costs to salaries and rents.
As I've said before, analyze how many people would be helped by this bill. A few hundred thousand max after you get into the details as #1 points out. And that is nothing in the context of a crisis involving hundreds of millions of people.
Nice sound bite, but "where's the beef"
$7500 is nothing in the context of the losses we are continuing to look at, btw - less than 2% on a 400k house. But I'm sure some will be fooled by it.
I'm trying to figure out why the news was "depressing" - the Massachusetts Affordable Housing Alliance spent $2.8 billion in the past 20 years to achieve what market forces are doing for free. As home prices decline, more individuals will be able to afford housing within the state - encouraging job growth through retention of talented professionals and increasing the amount of take home pay they can spend at local businesses. What we need to do is encourage price discovery of the true value of a home, not provide tax breaks of $7,500 to first time home buyers, which simply allow sellers to raise their price $7,500 at the hand of the taxpayer.
No, news of home price declines are great news for all concerned - Realtors should encourage the discovery of the true value of a home to increase transactions, sellers should realize that the past ten years were an exception, not the rule, and buyers should realize slow/no/negative growth in home prices means they'll have more disposable income in the future.
Imagine if the "National Association of Oil Producers" predicted that price of gas would double every ten years - we'd be rioting in the streets. Or the "National Association of Food Producers", or "National Association of Tax Collectors". Home price inflation is just that - it robs future generations of the ability to invest in productive assets (businesses that create jobs, communities, and a tax base) and replaces it with a Ponzi scheme that is unsustainable, yet here we are throwing taxpayer money at the problem trying to keep the game going.
Why are we spending taxpayer money on affordable housing while throwing taxpayer money at the "problem" of low house prices? Delcining house prices are not the reason the economy in Massachusetts is in the gutter, rather the reason the economy is in the gutter is we had nothing left to invest after spending all our money on houses!!! Let the prices decline to a natural level without government interference and you'll see a return to prosperity.
I'd rather they kept the first-time-buyer credit and let the market correct itself rather than propping up unreasonable house prices and "giving" first time buyers a tax credit for buying at prices they can't afford.
As with all other kinds of rebates: Don't buy it if you can't afford it without the rebate. The possibility of $7500 in the form of a government check doesn't make that $300,000 house any more affordable to me.
This blogger might want to review your comment before posting it.
Recent Posts
browse this blog
by categoryINside Boston.com