Matthew Ferrara, Philosopher
 

Housing Stimulus: Dumb and Dumber

As President Obama signed the stimulus bill into law yesterday, the vast majority of Americans, and some REALTORS, registered their vote against it. No, another election wasn’t held – but the 300 point drop in the DOW Jones Industrials Index is a better indicator than an election of citizen sentiment on any given day. Obviously, most Americans aren’t fooled by this bill: It neither inspired confidence nor demonstrated a clear path out of the recession. Political pundits on both sides of the aisle were forced into the interminable pattern of “yes, but…” in their commentary.

Yet the National Association of REALTORS’s Chief Economist Lawrence Yun hailed the move, saying, “… the housing component is clearly the best measure to turn the economy around.”

Apparently the President isn’t the only pseudo-economist around here.

Ordinary calculator-wielding Americans don’t need to read Adam Smith to know he must be laughing in his grave at Obamanomics. Aside from the widely posted lists of pork-barrel spending in the bill, the housing provision is the one that defies even a third-grader’s understanding of the lemonade-stand price mechanism. If you have been selling your lemonade for 50-cents a cup all week, and you see your customer walking coming down the street, suddenly bend over to pick up a dollar bill on the sidewalk, what would you do?

Flip your price poster right over and scrawl “Only $1 a cup!” as fast as you can. Of course.

It seems that even NAR doesn’t understand how supply-and-demand works in the marketplace. Nor do they understand that the price of a commodity is set by the buyer, not the seller. Every agent struggling to sell a listing today does so because they have set a price as indicated by the SELLER. Every time a buyer passes by and doesn’t make an offer, or makes a lower priced offer that is not accepted, the commodity sits unsold in inventory. Only two situations will lead to a sale under these circumstances: The sellers will “listen” to the buyers and reset the price offered for the home; or the sellers will consume their backup-supply of “waiting capital” and end up in financial distress, at which point the home will sell for the buyer-indicated market price, or perhaps even less, as buyers smell a distressed-price bargain.

Now, according to some yet-to-be-explained logic of real estate , many members of the National Association of REALTORS think the rules of supply-and-demand can be fooled, once again, by extending extra unearned credit to the buyer side of the equation. That’s the basic principle behind the $8000 tax credit in the housing stimulus package. And of course, it won’t work because sellers watch the same television news that buyers do. In other words, once sellers know that buyer suddenly have $8000 extra “free” money in their pockets, it’s not hard to guess what they will do:

Raise the price of their home by $8000, of course.

Once again, this isn’t the seller setting the price. It’s the buyer doing it.  If somehow buyers could have received the $8000 tax credit in secret then sellers wouldn’t adjust their prices. But of course, the government’s market distortion is known to everybody. So the only sensible reaction – in market terms – is the one that always happens when you give away free money:

Inflation.

Some people are arguing that we won’t have inflation because there is “excess” housing inventory. So it’s not “more” money chasing “scarce” commodities, and the prices will hold steady. That kind of logic only works if you assume sellers are dumber than the government. But many sellers’ balance sheets are more distressed” than the Fed’s, so they need every dollar they can get, just to sell without a loss. When they hear the government is offering buyers $8,000 extra bucks, they will conclude that increasing the price of their homes will not “harm” the buyer in any way, and will help them fill in their equity-gaps at the same time.

The result: $8000 higher housing prices offered to $8000 richer buyers. And the market remains frozen.

No amount of shifting money from some pockets to others can “create” wealth. This is the fundamental error of all government spending, and the critical flaw in the entire stimulus plan. None of the money being spent was “created” by the government – say, through the profitable sale of a product or service, or even by capturing it from defeating a foreign enemy and stealing their gold, as in the 19th century. All of the money being “spent” is merely being “redistributed” from fuller pockets to emptier ones – and even stolen from future pockets. The prices of goods and services in the marketplace simply follows the money.

Even basic accounting is based upon “double entry” bookkeeping.

So the housing industry isn’t about to get any better, because the $8,000 tax credits isn’t going to fix the fundamental market problems. Excess inventory will become $8,000 more expensive, so buyers will see their “tax credit” as essentially worthless. Buyers will stay pat. They will continue to watch from the sidelines, at the same point where they believe housing prices still too expensive. They have been waiting for housing prices to fall further, not rise by $8,000, before they look are enticed to buy.

There is an answer to this problem. But it doesn’t involve giving away $8,000 to either party. The solution is to not to increase the money supply, but the value of money. It’s done by raising interest rates, not lowering them, and making money more valuable, and somewhat more scarce. Rather than deflating the dollar by giving more out, raise interest rates on both savings and mortgage lending. This will signal to buyers that the cost of borrowing is starting to rise, and induce them to stop waiting for prices to fall.

Make the dollar more powerful, not more plentiful, and price mechanisms will do their own work. The value of homes will stop sliding, since all remaining equity is priced in dollars. Buyers will be psychologically induced to get back into the market, for fear of higher borrowing costs, without spending virtually a dollar.

(From Wall Street Journal Blog. To read entry, click here.)

In fact, spending less dollars, not more, is the real solution to the economic crisis, both in housing and broader markets. Price stability comes with currency stability; dollars that spiral down in value take commodities priced in dollars with it. We see this every day at the gas pumps: oil’s meteoric rise was due to cheap money (inflation of dollars), and crashed when investors feared the dollar was becoming worthless. Stable or increasing value currencies (through money supply or inflation control) maintain commodity prices, like home prices. They help buyers feel more comfortable spending the money they have, because they can make reasonable guesses about the future value of their investments.

Everything the government is doing is the exact opposite of these fundamental laws of economics. The generation in power doesn’t believe in economic laws anyway. Yet you would think that at least a few economists – such as those in the housing industry – would at least know better. It’s one thing to think our politicians are doing some dumb things; it’s another when our intellectual class act even dumber.

See you in the breadlines.

– Matthew

  • Muffie Hendricks

    Re: Dumb and Dumber. Yo, Dude you want to tone it down a little? We are all in this together and it’s more helpful to be pulling together rather than blasting apart. Besides, what school of economics gave you your degree? Didn’t think so. Reading the WSJ does not make you a scholar of economics. My husband has been out of work for a year, and he’s not the only one. Because of our wise investing which was to get advisers who didn’t always go with Wall Street , we have been able to keep our heads above water so far. If you want to shout at us, it’s your prerogative, but until you have a solid plan that the more than a few (living) economists who have approved Obama’s plan would consider, pipe down. How about reading some OTHER newspapers and blogs, not just the ones you agree with. Oh, and BTW, it’s the players on Wall Street who don’t like the plan – not the average American citizen on any given day, so no vote gets recorded. More likely housing starts tanking even more is the cause of the jitters.

    Thank you for your consideration.

    Signed, one of the dumb and dumber majority who voted against your economic planners in November.

  • Muffie Hendricks

    Re: Dumb and Dumber. Yo, Dude you want to tone it down a little? We are all in this together and it’s more helpful to be pulling together rather than blasting apart. Besides, what school of economics gave you your degree? Didn’t think so. Reading the WSJ does not make you a scholar of economics. My husband has been out of work for a year, and he’s not the only one. Because of our wise investing which was to get advisers who didn’t always go with Wall Street , we have been able to keep our heads above water so far. If you want to shout at us, it’s your prerogative, but until you have a solid plan that the more than a few (living) economists who have approved Obama’s plan would consider, pipe down. How about reading some OTHER newspapers and blogs, not just the ones you agree with. Oh, and BTW, it’s the players on Wall Street who don’t like the plan – not the average American citizen on any given day, so no vote gets recorded. More likely housing starts tanking even more is the cause of the jitters.

    Thank you for your consideration.

    Signed, one of the dumb and dumber majority who voted against your economic planners in November.

  • Muffie Hendricks

    Re: Dumb and Dumber. Yo, Dude you want to tone it down a little? We are all in this together and it’s more helpful to be pulling together rather than blasting apart. Besides, what school of economics gave you your degree? Didn’t think so. Reading the WSJ does not make you a scholar of economics. My husband has been out of work for a year, and he’s not the only one. Because of our wise investing which was to get advisers who didn’t always go with Wall Street , we have been able to keep our heads above water so far. If you want to shout at us, it’s your prerogative, but until you have a solid plan that the more than a few (living) economists who have approved Obama’s plan would consider, pipe down. How about reading some OTHER newspapers and blogs, not just the ones you agree with. Oh, and BTW, it’s the players on Wall Street who don’t like the plan – not the average American citizen on any given day, so no vote gets recorded. More likely housing starts tanking even more is the cause of the jitters.

    Thank you for your consideration.

    Signed, one of the dumb and dumber majority who voted against your economic planners in November.

  • Matthew Ferrara

    Dear Muffie:

    Thanks (somewhat) for your comments. I appreciate you taking the time to write your comments. I therefore will spend a moment replying:

    1. If we are all in this together, then why is it that only SOME of us are paying for it? Keep that in mind, when you continue to vote for taking some people’s money (like mine) to pay for other people’s mistakes.

    2. I happen to have a degree in Economics (it was my minor at school, where I earned a BA in Philosophy, a BA in Political Science, and a minor concentration in economics.) Believe it or not, there are people in the world who actually studied the science of economics. If, however, you’d like to find a group who most CERTAINLY has NOT, then I suggest you check the ranks of Congress.

    3. I do not believe that the “correctness” of a policy should be made by the “number” of people who support or oppose it. There are just as many “living” economists who oppose this stimulus plan, so “counting” the sides is really silly. Good decisions are based upon facts and reasoning, not “more votes.” For further study, I remind you that the majority of Germans voted “for” Nazism.

    4. The average American, as you say, does NOT like the plan. How would I know? According to Rasmussen, who polls Average Americans, here’s the latest feedback:

    ” Support for the economic recovery plan working its way through Congress has fallen again this week. For the first time, a plurality of voters nationwide oppose the $800-billion-plus plan.

    The latest Rasmussen Reports national telephone survey found that 37% favor the legislation, 43% are opposed, and 20% are not sure. ”

    See http://www.rasmussenreports.com/public_content/business/economic_stimulus_package/support_for_stimulus_package_falls_to_37

    Lastly, let me just say this: While I’m sorry to hear your husband has been out of work for a year, it does not automatically give him any right to MY money. Your misfortune is not grant you any claims on my life, my work or money. I don’t ask him to send me his money, nor sacrifice for me; and I expect the same in return.

    This is why I disagree with the stimulus as a whole, and the housing part in particular. Whenever someone talks about “sacrifice” for the greater good, you can be sure there’s someone who is “collecting” the sacrifice from some, to give to others.

    Wishing you good fortune,
    Matthew

  • Matthew Ferrara

    Dear Muffie:

    Thanks (somewhat) for your comments. I appreciate you taking the time to write your comments. I therefore will spend a moment replying:

    1. If we are all in this together, then why is it that only SOME of us are paying for it? Keep that in mind, when you continue to vote for taking some people’s money (like mine) to pay for other people’s mistakes.

    2. I happen to have a degree in Economics (it was my minor at school, where I earned a BA in Philosophy, a BA in Political Science, and a minor concentration in economics.) Believe it or not, there are people in the world who actually studied the science of economics. If, however, you’d like to find a group who most CERTAINLY has NOT, then I suggest you check the ranks of Congress.

    3. I do not believe that the “correctness” of a policy should be made by the “number” of people who support or oppose it. There are just as many “living” economists who oppose this stimulus plan, so “counting” the sides is really silly. Good decisions are based upon facts and reasoning, not “more votes.” For further study, I remind you that the majority of Germans voted “for” Nazism.

    4. The average American, as you say, does NOT like the plan. How would I know? According to Rasmussen, who polls Average Americans, here’s the latest feedback:

    ” Support for the economic recovery plan working its way through Congress has fallen again this week. For the first time, a plurality of voters nationwide oppose the $800-billion-plus plan.

    The latest Rasmussen Reports national telephone survey found that 37% favor the legislation, 43% are opposed, and 20% are not sure. ”

    See http://www.rasmussenreports.com/public_content/business/economic_stimulus_package/support_for_stimulus_package_falls_to_37

    Lastly, let me just say this: While I’m sorry to hear your husband has been out of work for a year, it does not automatically give him any right to MY money. Your misfortune is not grant you any claims on my life, my work or money. I don’t ask him to send me his money, nor sacrifice for me; and I expect the same in return.

    This is why I disagree with the stimulus as a whole, and the housing part in particular. Whenever someone talks about “sacrifice” for the greater good, you can be sure there’s someone who is “collecting” the sacrifice from some, to give to others.

    Wishing you good fortune,
    Matthew

  • Matthew Ferrara

    Dear Muffie:

    Thanks (somewhat) for your comments. I appreciate you taking the time to write your comments. I therefore will spend a moment replying:

    1. If we are all in this together, then why is it that only SOME of us are paying for it? Keep that in mind, when you continue to vote for taking some people’s money (like mine) to pay for other people’s mistakes.

    2. I happen to have a degree in Economics (it was my minor at school, where I earned a BA in Philosophy, a BA in Political Science, and a minor concentration in economics.) Believe it or not, there are people in the world who actually studied the science of economics. If, however, you’d like to find a group who most CERTAINLY has NOT, then I suggest you check the ranks of Congress.

    3. I do not believe that the “correctness” of a policy should be made by the “number” of people who support or oppose it. There are just as many “living” economists who oppose this stimulus plan, so “counting” the sides is really silly. Good decisions are based upon facts and reasoning, not “more votes.” For further study, I remind you that the majority of Germans voted “for” Nazism.

    4. The average American, as you say, does NOT like the plan. How would I know? According to Rasmussen, who polls Average Americans, here’s the latest feedback:

    ” Support for the economic recovery plan working its way through Congress has fallen again this week. For the first time, a plurality of voters nationwide oppose the $800-billion-plus plan.

    The latest Rasmussen Reports national telephone survey found that 37% favor the legislation, 43% are opposed, and 20% are not sure. ”

    See http://www.rasmussenreports.com/public_content/business/economic_stimulus_package/support_for_stimulus_package_falls_to_37

    Lastly, let me just say this: While I’m sorry to hear your husband has been out of work for a year, it does not automatically give him any right to MY money. Your misfortune is not grant you any claims on my life, my work or money. I don’t ask him to send me his money, nor sacrifice for me; and I expect the same in return.

    This is why I disagree with the stimulus as a whole, and the housing part in particular. Whenever someone talks about “sacrifice” for the greater good, you can be sure there’s someone who is “collecting” the sacrifice from some, to give to others.

    Wishing you good fortune,
    Matthew

  • Muffie,

    With all do respect; Matthew is actually on your side whether you believe it or not. His argument, from my perspective, is with the NATIONAL ASSOCIATION of REALTORS, not the 52% who voted for “change” without understanding the “Law of Unintended Consequences”.

    Matthew,

    While I agree with you whole-heartedly, aren’t we “closing the barn door after the horse has been stolen”?

    Buyers IGNORED the “tax credit” when it was $7,500. Personally, I don’t believe increasing it by $500 and making it “forgivable” is going to dramatically change buyer behavior. Rates have to go up! It’s the ONLY thing that will get buyers off the fence. Unfortunately, INFLATION will take care of that for us.

    Time will tell. The big question is; will we listen this time?

    Keep fighting the good fight. I have your back!

  • Muffie,

    With all do respect; Matthew is actually on your side whether you believe it or not. His argument, from my perspective, is with the NATIONAL ASSOCIATION of REALTORS, not the 52% who voted for “change” without understanding the “Law of Unintended Consequences”.

    Matthew,

    While I agree with you whole-heartedly, aren’t we “closing the barn door after the horse has been stolen”?

    Buyers IGNORED the “tax credit” when it was $7,500. Personally, I don’t believe increasing it by $500 and making it “forgivable” is going to dramatically change buyer behavior. Rates have to go up! It’s the ONLY thing that will get buyers off the fence. Unfortunately, INFLATION will take care of that for us.

    Time will tell. The big question is; will we listen this time?

    Keep fighting the good fight. I have your back!

  • Muffie,

    With all do respect; Matthew is actually on your side whether you believe it or not. His argument, from my perspective, is with the NATIONAL ASSOCIATION of REALTORS, not the 52% who voted for “change” without understanding the “Law of Unintended Consequences”.

    Matthew,

    While I agree with you whole-heartedly, aren’t we “closing the barn door after the horse has been stolen”?

    Buyers IGNORED the “tax credit” when it was $7,500. Personally, I don’t believe increasing it by $500 and making it “forgivable” is going to dramatically change buyer behavior. Rates have to go up! It’s the ONLY thing that will get buyers off the fence. Unfortunately, INFLATION will take care of that for us.

    Time will tell. The big question is; will we listen this time?

    Keep fighting the good fight. I have your back!

  • Matthew Ferrara

    Jim:
    Thanks for your kind comments and support! I appreciate it and feel better knowing I’m not holding onto the last cask of reason floating alone in the cold sea!

    I think you’re right when you say increasing the tax credit $500 might not make a big difference; except this tax credit is a Clean credit which means it does NOT have to be paid back (I think the last one was a kind of credit/loan).

    Imagine this: you buy your first home this year; you claim the $8000 credit on your taxes, but you only earned enough to have a $3000 federal tax liability anyway. So what will the government do?

    Send you a CHECK FOR $5000 of (my) money!

    Did Bernie Madoff design this stimulus plan?????

    Thanks, Jim.

    Best wishes for success (at least while wishes can still be offered for free).

  • Matthew Ferrara

    Jim:
    Thanks for your kind comments and support! I appreciate it and feel better knowing I’m not holding onto the last cask of reason floating alone in the cold sea!

    I think you’re right when you say increasing the tax credit $500 might not make a big difference; except this tax credit is a Clean credit which means it does NOT have to be paid back (I think the last one was a kind of credit/loan).

    Imagine this: you buy your first home this year; you claim the $8000 credit on your taxes, but you only earned enough to have a $3000 federal tax liability anyway. So what will the government do?

    Send you a CHECK FOR $5000 of (my) money!

    Did Bernie Madoff design this stimulus plan?????

    Thanks, Jim.

    Best wishes for success (at least while wishes can still be offered for free).

  • Matthew Ferrara

    Jim:
    Thanks for your kind comments and support! I appreciate it and feel better knowing I’m not holding onto the last cask of reason floating alone in the cold sea!

    I think you’re right when you say increasing the tax credit $500 might not make a big difference; except this tax credit is a Clean credit which means it does NOT have to be paid back (I think the last one was a kind of credit/loan).

    Imagine this: you buy your first home this year; you claim the $8000 credit on your taxes, but you only earned enough to have a $3000 federal tax liability anyway. So what will the government do?

    Send you a CHECK FOR $5000 of (my) money!

    Did Bernie Madoff design this stimulus plan?????

    Thanks, Jim.

    Best wishes for success (at least while wishes can still be offered for free).

  • Don Rovero

    I agree interets rates have to go up. Buyers are convinced there is a reward to be had in sitting out the market right now. The bigger problem is all the money being sucked out of the economy. The top 1% of the country is taking home 23% of the money – 3x more than a few years ago, as wages and standard of living fall for the rest of us. None of these companies would be in as deep if the folks at the top had not siphoned off unrealistic amounts of money for years on end. No bailouts for businesses, wehter banks or automakers – someone will buy these failures at a discount and make money. Will lots of people lose their jobs? YES and it will be painful…but the fact is NONE of these greedy b-stards have ANY intention of sharing the profits with us – only the losses.

  • Don Rovero

    I agree interets rates have to go up. Buyers are convinced there is a reward to be had in sitting out the market right now. The bigger problem is all the money being sucked out of the economy. The top 1% of the country is taking home 23% of the money – 3x more than a few years ago, as wages and standard of living fall for the rest of us. None of these companies would be in as deep if the folks at the top had not siphoned off unrealistic amounts of money for years on end. No bailouts for businesses, wehter banks or automakers – someone will buy these failures at a discount and make money. Will lots of people lose their jobs? YES and it will be painful…but the fact is NONE of these greedy b-stards have ANY intention of sharing the profits with us – only the losses.

  • Don Rovero

    I agree interets rates have to go up. Buyers are convinced there is a reward to be had in sitting out the market right now. The bigger problem is all the money being sucked out of the economy. The top 1% of the country is taking home 23% of the money – 3x more than a few years ago, as wages and standard of living fall for the rest of us. None of these companies would be in as deep if the folks at the top had not siphoned off unrealistic amounts of money for years on end. No bailouts for businesses, wehter banks or automakers – someone will buy these failures at a discount and make money. Will lots of people lose their jobs? YES and it will be painful…but the fact is NONE of these greedy b-stards have ANY intention of sharing the profits with us – only the losses.

  • Virginia

    Matthew, as usual you are right on. (Sorry, Muffie!) Don’t tone it down at all. If anything, you were too polite!

    This whole so-called stimulus bill is comprised of equal parts of pork and smoke and mirrors. The only thing you neglected to mention is that, as those good people are collecting the sacrifices “for the greater good” from some to give to others, there is generally a nice chunk of change sticking to their fingers as it passes through.

    Redistributing the wealth has ended in nearly everyone being the poorer every time it has been tried. Nationalizing banks and other industries doesn’t work either – see Bolivia, Venezuela, Russia, etc.,etc. Like a pyramid scheme, only those in at the very top see any increase.

    I never thought we’d see this day in America. Sadly, as soon as the have-nots in a democracy realize that they can vote themselves money and benefits from those that have earned them, that democracy is doomed to fail. They don’t know when to stop before they kill that golden goose.

    Keep up the good work, Matthew!

  • Virginia

    Matthew, as usual you are right on. (Sorry, Muffie!) Don’t tone it down at all. If anything, you were too polite!

    This whole so-called stimulus bill is comprised of equal parts of pork and smoke and mirrors. The only thing you neglected to mention is that, as those good people are collecting the sacrifices “for the greater good” from some to give to others, there is generally a nice chunk of change sticking to their fingers as it passes through.

    Redistributing the wealth has ended in nearly everyone being the poorer every time it has been tried. Nationalizing banks and other industries doesn’t work either – see Bolivia, Venezuela, Russia, etc.,etc. Like a pyramid scheme, only those in at the very top see any increase.

    I never thought we’d see this day in America. Sadly, as soon as the have-nots in a democracy realize that they can vote themselves money and benefits from those that have earned them, that democracy is doomed to fail. They don’t know when to stop before they kill that golden goose.

    Keep up the good work, Matthew!

  • Virginia

    Matthew, as usual you are right on. (Sorry, Muffie!) Don’t tone it down at all. If anything, you were too polite!

    This whole so-called stimulus bill is comprised of equal parts of pork and smoke and mirrors. The only thing you neglected to mention is that, as those good people are collecting the sacrifices “for the greater good” from some to give to others, there is generally a nice chunk of change sticking to their fingers as it passes through.

    Redistributing the wealth has ended in nearly everyone being the poorer every time it has been tried. Nationalizing banks and other industries doesn’t work either – see Bolivia, Venezuela, Russia, etc.,etc. Like a pyramid scheme, only those in at the very top see any increase.

    I never thought we’d see this day in America. Sadly, as soon as the have-nots in a democracy realize that they can vote themselves money and benefits from those that have earned them, that democracy is doomed to fail. They don’t know when to stop before they kill that golden goose.

    Keep up the good work, Matthew!

  • Matthew Ferrara

    Thanks Virginia – Your sentiments are mine as well.

    As Dante Alighieri used to say: Tu ne cede malis. …. Never give in to evil, but move ever more boldly against it. So I shall, in my little ways, on my blog.

    Best,
    Matthew

  • Matthew Ferrara

    Thanks Virginia – Your sentiments are mine as well.

    As Dante Alighieri used to say: Tu ne cede malis. …. Never give in to evil, but move ever more boldly against it. So I shall, in my little ways, on my blog.

    Best,
    Matthew

  • Matthew Ferrara

    Thanks Virginia – Your sentiments are mine as well.

    As Dante Alighieri used to say: Tu ne cede malis. …. Never give in to evil, but move ever more boldly against it. So I shall, in my little ways, on my blog.

    Best,
    Matthew

  • Sheila Kraemer

    Will the $8000 forgivable tax credit entice buyers? Yes. The fact that it had a recapture at $7500 kept it from being used. Is the tax credit necessary or even desireable to stimulate the market? Hell, no! The market will recover without it.

    In fact, only those markets where prices rose astronomically need “help.” They are experiencing a market correction. (Never mind “supply and demand” theory. Anyone ever hear of “For every action there is an equal and opposite reaction?!) Most of the country, like my market, never had astronomical rises and never fell. There was no “bubble,” so there was no bubble to burst.

    Will sellers raise their prices by $8000? Some will, and for some it will work, but for most, buyers will still be trying to get homes for less, so market conditions will rule, as always. Any over priced house in the eyes of potential buyers stays on the market until it drops BELOW what it would have sold for had it been priced at current market value in the first place. ONLY when inventory falls to the point that it becomes a seller’s market again will home values/prices rise again. As long as it remains a buyer’s market that won’t happen.

    If the average price in an area is $100,00, an $8000 increase is too much. It won’t work. If it is $500,000, it may not be noticed, and a seller might get away with asking more. Everything relative. Every market is local. National plans waste money by throwing it where it is not needed.

    I was a new realtor when the real estate market crashed in the 80’s, and my area was especially hard hit when the third largest employer went out of business at the same time. We survived and bounced back. This is nothing in comparison.

    The worst thing that happened in the 80’s was the government closing and taking over S & Ls and then turning down market value offers in order to liquidate the properties at half their market value, thus bringing down market values for everyone! The worst thing that is happening now is the government taking over.

    One thing I haven’t heard mentioned is the great job NAR lobbyists did in keeping banking out or real estate. Can you imagine the mess we’d be in if the banks also were selling real estate? You think they made bad loans now? I don’t want to imagine what they could have done, had they won that battle!

  • Sheila Kraemer

    Will the $8000 forgivable tax credit entice buyers? Yes. The fact that it had a recapture at $7500 kept it from being used. Is the tax credit necessary or even desireable to stimulate the market? Hell, no! The market will recover without it.

    In fact, only those markets where prices rose astronomically need “help.” They are experiencing a market correction. (Never mind “supply and demand” theory. Anyone ever hear of “For every action there is an equal and opposite reaction?!) Most of the country, like my market, never had astronomical rises and never fell. There was no “bubble,” so there was no bubble to burst.

    Will sellers raise their prices by $8000? Some will, and for some it will work, but for most, buyers will still be trying to get homes for less, so market conditions will rule, as always. Any over priced house in the eyes of potential buyers stays on the market until it drops BELOW what it would have sold for had it been priced at current market value in the first place. ONLY when inventory falls to the point that it becomes a seller’s market again will home values/prices rise again. As long as it remains a buyer’s market that won’t happen.

    If the average price in an area is $100,00, an $8000 increase is too much. It won’t work. If it is $500,000, it may not be noticed, and a seller might get away with asking more. Everything relative. Every market is local. National plans waste money by throwing it where it is not needed.

    I was a new realtor when the real estate market crashed in the 80’s, and my area was especially hard hit when the third largest employer went out of business at the same time. We survived and bounced back. This is nothing in comparison.

    The worst thing that happened in the 80’s was the government closing and taking over S & Ls and then turning down market value offers in order to liquidate the properties at half their market value, thus bringing down market values for everyone! The worst thing that is happening now is the government taking over.

    One thing I haven’t heard mentioned is the great job NAR lobbyists did in keeping banking out or real estate. Can you imagine the mess we’d be in if the banks also were selling real estate? You think they made bad loans now? I don’t want to imagine what they could have done, had they won that battle!

  • Matthew Ferrara

    Sheila:
    You’re right: the $8000 tax credit but it’s not going to help buyers at all because sellers are going to adjust their offering prices by the same amount – therefore, status quo. In fact, if I were a SELLER’S AGENT right now, I’d be telling my sellers to raise the price of their home by $8k right away for three reasons:

    1. We know buyers are getting $8k free, so the market will have that much more to spend.
    2. It would be my duty as the seller’s agent to maximize the sales price for my sellers.
    3. Many sellers are so far underwater that they need to raise their prices by $8000 just to make offers work where they won’t have to bring (so much) money to the table to close.

    However, I can’t agree with you about NAR’s “positive outcome” of keeping banks out of real estate. I don’t believe in ANY protectionism – not even NAR’s version – and while it’s possible that the situation could be worse, on the other hand, I can offer a scenario where it would be BETTER if banks were in real estate right now:

    If the local community bank or credit union could broker real estate they could WAIVE a lot of fees that are holding buyers back right now (including real estate commissions) because they could represent their own homes and make their money on the financing. From a purely economic standpoint, this would benefit sellers and buyers, and while it would NOT benefit REALTORS who make their living on “traditional” seller-side commissions, the overall positive benefit of brokering your own inventory could be that they lowered prices faster, without having to account for the “seller agent commission” when trying to modify loans to reach a net profit.

    So I can see a lot of reasons why banks IN real estate might actually have sped up our recovery….

    Thanks for stopping by!
    Matthew

  • Matthew Ferrara

    Sheila:
    You’re right: the $8000 tax credit but it’s not going to help buyers at all because sellers are going to adjust their offering prices by the same amount – therefore, status quo. In fact, if I were a SELLER’S AGENT right now, I’d be telling my sellers to raise the price of their home by $8k right away for three reasons:

    1. We know buyers are getting $8k free, so the market will have that much more to spend.
    2. It would be my duty as the seller’s agent to maximize the sales price for my sellers.
    3. Many sellers are so far underwater that they need to raise their prices by $8000 just to make offers work where they won’t have to bring (so much) money to the table to close.

    However, I can’t agree with you about NAR’s “positive outcome” of keeping banks out of real estate. I don’t believe in ANY protectionism – not even NAR’s version – and while it’s possible that the situation could be worse, on the other hand, I can offer a scenario where it would be BETTER if banks were in real estate right now:

    If the local community bank or credit union could broker real estate they could WAIVE a lot of fees that are holding buyers back right now (including real estate commissions) because they could represent their own homes and make their money on the financing. From a purely economic standpoint, this would benefit sellers and buyers, and while it would NOT benefit REALTORS who make their living on “traditional” seller-side commissions, the overall positive benefit of brokering your own inventory could be that they lowered prices faster, without having to account for the “seller agent commission” when trying to modify loans to reach a net profit.

    So I can see a lot of reasons why banks IN real estate might actually have sped up our recovery….

    Thanks for stopping by!
    Matthew