Recently a coalition of homebuilders, real estate agents and other housing stakeholders have come together to formulate a plan to fix the economy. For the purpose of making their plan known, they have even created a website: fixhousingfirst.com. They proclaim that the main reason that the economy is so down right now is because the real estate market is being battered. After all, the problems began when housing values started to fall and foreclosures mounted, which exposed troubled mortgage-backed securities. So naturally, if we hope to fix this financial crisis, then we must address the most glaring problem first and foremost, right?
“So what is their big plan,” you ask? To create another housing bubble of course!
Their plan, as written on the website, is outlined below:
- Enhance the initial Home Buyer Tax Credit:
- Eligible purchases: Primary residences between April 9, 2008, and December 31, 2009.
- Credit amount: 10% of home price capped at 3.5% of FHA loan limits (geographically dependent) — ranging between approximately $10,000 and $22,000.
- Eliminate the recapture — a true tax credit [Here they are referring to the repayment of credit described above. In the previous housing bill there was an interest free loan for first time homebuyers of $7,500.]
- Monetization: credit available at time of closing.
- Available to all home buyers and not just first-time home buyers.
- Couple the enhanced tax credit with a below market 30-year fixed-rate mortgage for home purchases
- 2.99% rate available for contracts closed between now and June 30, 2009.
- 3.99% rate for contracts closed between June 30, 2009 and December 31, 2009.
- Continue foreclosure prevention measures to keep people in their homes, help stabilize home prices and bolster the economy.
Restated, they want taxpayers to pay the down payment for homebuyers and subsidize their mortgage payments as well. What would the net effect of this be? Housing would all suddenly become much more attractive and people would buy, pushing prices up. This is exactly what they say will happen, and is what they are striving for. The trouble is that it is an artificial boost to housing prices, which will inevitably lead to another housing bubble. Housing just isn’t worth what it currently costs. That is the simple truth, and a truth that we all need to grasp. Once the subsidies are gone, housing prices will once again fall until they hit their true value point.
If we are looking for a solution to temporarily get us out of this mess, I think this is certainly one plan that will help with that. However, to me it seems like a waste of time and money when in the end we are ultimately going to return to the same place we were before. This plan is not sustainable in any way shape or form, and should not be seriously considered. Then again what did one expect to see from a plan constructed entirely by home builders, real estate agents and other housing stakeholders?
Labels: credit crisis, economic stimulus, economy, housing bubble, mortgages, real estate, recession
