From the WP Writers Group via the U-T:
Here’s a quick overview: Though Congress technically is on its summer break, most members of the Senate and House use part of the August recess to meet with and listen to constituents back in their home districts.
This year, the two biggest housing trade groups — the 1.2 million-member National Association of Realtors and the National Association of Home Builders — are spending the month mounting unusually intense grass-roots lobbying campaigns to make the case for extending the credit, and maybe even expanding it.
On a national basis, according to economists at the National Association of Realtors, anywhere from 300,000 to 350,000 additional sales of houses will be stimulated this year by the credit. Each home sale generates approximately $63,000 in downstream “ripple effects” elsewhere in the economy, they say — sales of furnishings, appliances, lawn mowers, landscaping, renovation materials, plus moving expenses.
If you accept the numbers — and some analysts consider them a stretch — this means the housing credit provides a powerful, immediate stimulus bang for the buck. Failure to extend what may be one of the most effective pieces of the Obama administration’s 2009 stimulus legislation would cost jobs, economic growth and tax revenues, the housing groups argue.
There are some early signs Congress may be getting the message. Bills already are pending in both houses to extend the credit for another year.
Senate Majority Leader Harry M. Reid, D-Nev., whose state has been among the worst hit by the housing bust, reportedly now favors an extension of the credit. He was quoted to that effect by the Las Vegas Sun on Aug. 5, adding, “It’s something we can get done.”
Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee and in a tight race for re-election next year, is co-sponsoring a bill with Georgia Republican Johnny Isakson that would raise the credit amount to a maximum of $15,000. Meanwhile, both the Realtors and the builders are pushing not only for extension of the credit, but for broadening it to cover all home purchases in 2010.
In the end, however, given the political economics of the housing credit, the odds favor some sort of extension, probably later rather than sooner. Don’t bank on a bigger credit, however, or broadening the concept to cover all purchasers next year.
More funny money.Where is all this money coming from people?The govt is totally broke running a huge deficit yet they want to give away more money via the printing press.Do you want your taxpayer dollars going toward people buying homes and new cars?????????????Something is not adding up here.
Yea free money! So much cheese! Who’s paying for it all? Who cares? Free money… Yea!
They will do whatever it takes to appease the voting blocks and will keep them in their seats. And the supporting the organizations with deep money gets them rewarded with more cabbage to run their campaign. Nothing new here.
NAT is #7 in lobby dollars spent in 2009 at 9.5M. Which is approx 50% decrease in the amount spent in ’08. CAR spent around 50K in ’09 compared to a little over 100K in ’08.
The Homebuilders and NAR (no offense Jim) are doing everything they can to keep the bidding wars alive. Which in most cases, ultimately end up in a higher sales price and negate the credit.
I also have a hard time believing that one home sale generates $63,000 since easy credit is a thing of the past. Most people aren’t buying furnishings with cash.
Our economy would be in much better shape if home prices fell and allowed more responsible buyers to purchase rather than perpetuate this illusion that prices have to stay elevated.
Good article on the state of our credit
http://mhanson.com/blog
God, can we please have a return to transparent markets sometime in my lifetime?
This is actually real stimulous!!!! I am a prespective buyer and as great as it is for me to see home values fall eventually it gets to a point where too many families are hurting and people are just going to walk away from their houses. Either way the money will be spent by the US GOV so why not let it stimulate? Maybe this can get the banks off their a##… hire some more staff and bring their REO inverntory to the market. Get the ball rolling and the free renters out vamanos! How good of a deal do people want? If you purchase a modest place it is very affordable right now all across the nation. San Diego is expensive will be expensive and people expecting that coastal masterpiece to fall out of the sky are DREAMIN.
Th Housing situation in America could spiral out of control and we will be worrying about more things than “how good of a deal” you can get on a home. This is not just a CA problem look around the US. There is not a “Frenzy” everywhere that is taking place in San Diego. I do not think the Goverment can make decissions to not pass this becuase San Diego is “Hot”.
I think we should have just let the bottom hit but the Government did not let that happen… so stimulating the housing market for all participants makes a lot of sense to me.
This is better use of stimulous money ie MY TAX dollars.
Jim–This is a bit off of the subject, but here is a nice article from Time Mag. They are using a Price-to-Rent ratio as a tool to gauge whether it is better to rent or to buy–makes sense to me. The average Price-to-Rent ratio in the US since 1986 is 16.5.
http://www.time.com/time/magazine/article/0,9171,1917725,00.html
I definitely think they will extend the credit.. in fact I can’t see how they’d ever take it away. The NAR, NAHB, MBA are so big and the bailout mentality (without any thought for paying for it) is so prevalent I defintely think they will extend it in its current form.
Everyone thinking now is the time to buy…remember that for the value of a house to go up, future buyers have to be willing and able to pay more for the same asset.
For that to happen you need some things to happen.
#1) Incomes of everyone could rise: Ask yourself how that is going to happen and when.
Or….
#2) The cost to borrow money could be lower: In a world where rates are held artificially low, how likely is that rates will be LOWER when you want to sell. IF rates ARE lower….why would that be? Certainly NOT because people are making more (see #1, above).
#3) The lending standards could ease: How long until we forget the sins of the last housing bubble?
#4) The Government could INCREASE incentives to buy: Mortgages are already tax deductable. Captial gains on houses are already tax free. The govt will currently give you $8,000 to buy a house. Sure the government can do more. How much more can they do before number #2 above is impossible?
Average Joe-
Ready, Willing and Able is what determines demand–in #1, 2 and 3, you have done a perfect job with the ABLE protion of the equation. Your #4 addresses the Ready/Willing portions. the fact is, that there are many poeple whom are already ABLE, setting on the sidelines, at some point their “Ready and Willing” side will kick in increasing demand (all else equal).
The incompetent idiots in out government will do ANYTHING to try and keep housing prices propped up.
Keep those sheeple spending, that’s the ticket!… morons.
Miguel…We too are in the market to buy, but not first time home buyers. Assuming we are looking in the same area and same price range, we are competitors.
Why in the world should our tax money be used to subsidize you, our competition? That’s socialism.
This is not real stimulus. It is again borrowing from the future generation to selfishly keep our bubble afloat.
Our politicians have lost sight of what our country is about and think about only near-term solutions to get them re-elected.
“That’s socialism.”
Nitpicking here, but it’s really called welfare capitalism.
It was not lost on me that jtr said he sees many a buyer with money from family as a means to keep them in the area.
My money is on an extension.
It’ll be curious to see how diminishing the returns are. We saw what happened with cash for clunkers.
An extension might also taper down the ‘hurry up and buy’ mentality that seems to be out there at the moment in the low end.
Once a credit is given it is very hard to remove. Think about farmers. Farmers own more land and equipment than most. By most measures Farmers are the richest people in the country and the most subsidized.
So while China continues to subsidize producing goods and services we continue to subsidize moving from home to home. No wonder the economy is doing so well.
“In a social democracy with a fiat currency, all roads lead to inflation”.
There’s a bit of a frenzy right now, because in order to qualify for the existing home buyers credit, escrow must close by the end of November. So, that gives maybe another month to get an accepted offer. Of course, even if they don’t extend the credit, sales of existing homes will look good through November (reported in December?) as all the deals close, but in actuality, the sales could drop way off by October.
Excerpts from…
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/08/23/MNTO197NHM.DTL
“Since January, I’ve put in 10 bids (on foreclosed homes); some were up to $80,000 over asking price and were still turned down,” said [first-time home buyer, Jay] Nielsen, 41, a medical assistant. Each time, the banks selected offers from investors with all-cash offers – even when those offers were lower than his, Nielsen said.
***
“Cash is king right now,” said Glen Bell of Keller Williams Realty in Berkeley. For foreclosed homes, “a cash offer that hits the target price will many times trump a higher-priced offer with a loan. The ability to close has become just as important to banks as price. The prospect of a property being tied up longer, still on their books and then falling out is costly.”
The result is that average consumers say they are being shut out because they can’t compete against deep-pocketed investors snapping up homes to rent out or flip. …
All-cash sales are most common where prices are low and bank-owned properties account for the lion’s share of listings. In foreclosure-ridden Pittsburg, for instance, 42.7 percent of home sales in the first three weeks of July had no record of a purchase loan, according to county data analyzed by MDA DataQuick. The median price for those transactions was $105,000.
****
“Houses are less expensive than they’ve been in over a decade, and there is a Gold Rush mentality out there,” said Andrew LePage, an analyst with San Diego’s DataQuick. “If you want to be the one who gets the house, in some cases you just have to have cash.”
“As properties hit below 100 bucks a square foot and the cash-flow ratios are there, investors are out buying 10 properties at a time in some of the same areas where first-time home buyers are looking,” said Kevin Kieffer, an agent with Keller Williams Realty in Danville. “If you buy a $150,000 home in Pittsburg, you can rent it out for $1,500 a month. But if you get a $500,000 home in Walnut Creek, renting it out for $5,000 is not going to happen.”
*****
Tim Garton of Coldwell Banker in Vallejo acts as a listing agent for many foreclosures. Another dynamic at work, he said: “Asset-management companies that handle sales for the banks are graded on how fast they can get properties off their books so they can get more properties.”
But Gary Kishner, a spokesman for JPMorganChase, said that banking giant accepts the highest offer on foreclosed homes, regardless of how offers are financed. The only time an all-cash offer might trounce a higher one with a mortgage, he said, would be if the financed offer were contingent on selling another house, or on rehabbing the foreclosed home to meet Federal Housing Administration requirements.
Cindy Kraeber of Hayward, who is relying on traditional financing, has bid unsuccessfully on nearly 30 homes from Fremont to Brentwood in the past four months.
While there are some first time buyers, some that got out during the bubble and are wanting back in, and many investors looking to pick up cheap rental properties, there are many that will probably never be back to buy a home again. They’ll be renting a place from the aforementioned investors.
Here’s evidence of a guy who put 10% down and lost it in a year. There are many that got into home ownership for the first time or some who already were in and withdrew too much equity, and they’ll never be in the hunt again, regardless of what type of credits are extended.
http://www.nytimes.com/2009/08/23/us/23bethone.html?_r=1&ref=business
In Moreno Valley, 76 percent of sales from July 2008 through July 2009 involved foreclosed houses, according to the research firm MDA DataQuick.
****
As prices rose across Southern California, they rose on Beth Court, too. Houses that went for under $200,000 just a few years earlier began to sell for $250,000 and higher.
An older man who bought the house at 11055 Beth Court for $132,500 in 1997 sold it in 2002 for $160,000. The next year, the new owners sold it to Mr. Soto for $230,000.
In retrospect, when examined through a pile of spreadsheets, the inflated pricing seems slightly insane. But at the time, Mr. Soto said, he was certain he was getting a deal.
****
Living Large (Too Large)
Equity soon became irresistible.
Ms. Sanchez and Mr. Winkler, the couple with two daughters, wanted a new car. So they pulled $15,000 out of the house. Mr. Godfrey and Ms. Saldamando, the schoolteachers, dipped into their equity to landscape their back yard. Mr. Blanco, the electrician, used it to invest in a lot in the desert, and Mr. Soto, the landscaper, picked up a rental home in the Central Valley, an agricultural area northwest of here.
The block’s first residents, Ms Hernandez and her husband, bought a shiny commercial truck, with dreams of expanding his trucking business. He pulled money out of the house nearly annually. And the couple from South Los Angeles used their house — bought for $152,500 in 1997 — as a veritable cash machine, refinancing three times before selling it in 2006 for $440,000.
But one by one, the strings began to come apart.
The new buyer of the Los Angeles couple’s home was quickly in over his head; he lost the house in less than a year, with $375,273 still owed.
*****HILARIOUS*****
Charlie and Danny have fun with the police state at the Canary Wharf, UK.
http://www.askbutwhy.com/2009/08/charlie-and-danny-at-canary-wharf-uk.html
RPVrenter
I do not qualify for the credit so we are on level playing field.
I was cheering on the credit for everyone for that was discussed in the article. I just look at all the money spent that is a total waste and limits the areas to a certain segment of the population.
By giving the credit to everyone it could stimulate housing in many areas of the nation and bring in Tax revenue.
In the end the American tax payer will be on the hook regardless so why not do something that might actually stimulate.
Next proposal: Kids get paid to do their homework, and couples get paid to stay married! In fact, why make things so complicated let’s just pay you to be an American!
Fine print: This will be charged to your credit card, which you can never pay off, and to which you and your grandchildren will be making interest payments on forever. Why pay principal when pick-a-pay is always cheaper in the short run! Right?
BTW FHA loans allow you to use your $8K as your down payment, effectively 0% down for many properties:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/07/REV517UOUT.DTL
At $15K, maybe they’ll let you get cash back for “buying” a home! This deal is essentially a free stock option on a house. You profit from selling on any upside, but get to walk on any downside.
Note to anyone planning on the $8K credit: it phases out for incomes $150K to $170K based on your MAGI. 401K contributions and other line items can reduce that amount, but not much else.
Miguel wrote:
I was cheering on the credit for everyone for that was discussed in the article. I just look at all the money spent that is a total waste and limits the areas to a certain segment of the population.
By giving the credit to everyone it could stimulate housing in many areas of the nation and bring in Tax revenue.
In the end the American tax payer will be on the hook regardless so why not do something that might actually stimulate.
————–
But **why** do we need to stimulate housing in the first place? The housing markets are on fire **across the country** and even overseas again, as well. This is NOT a San Diego-specific phenomenon.
The reason we have so many foreclosures right now is because loose lending (low rates, little down, high LTVs, high DTI ratios, etc.) pushed prices up so high that people could not afford their mortgages unless prices continued to rise indefinitely — allowing them to recycle and grow their debt forever. This is not the basis of a sound housing market; it never was, and it never will be.
We are continuing with the same misguided policies again, and they will end up with the same results, except that taxpayers will be on the hook instead of private lenders.
The difference this time is that the government is insanely in the red and accelerating the bleeding. Just like the bubble economy, that is entirely unsustainable and will result in a greater collapse, perhaps much sooner than anyone would expect.
Until that time, it’s apparently free money for everyone. I’m surprised they haven’t already raised the FHA limit to $1M and eliminated the DP requirement.
Market Manipulation? Meh. Same charge was rendered during FDR’s wanton “new deal” spending. At the time there was tremendous carping about just “letting the market work” and “only delaying the inevitable”.
Both are true, but weve been able to squeeze 70 years out of govt manipulation – and were still here. I wouldnt be surprised if we get another 50 years or so out of this next round.
First thing I do when I buy a house is spend $63k on miscellaneous goods and services. Then I know I’m doing my part!
Seriously, these clowns need to be publicly flogged for their outrageous economic LIES. $63k? Really? Is that on a cashout 110% LTV purchase? What a bunch of a-holes, and now they are conning congress to further manipulate a market that desperately needs to correct (and will in the long term).
I have been for zero GOV intrusion from the start. Let us find a bottom and then start the recovery. That has not happened and will not happen. If we had not started some of the programs we did then we are probably bottoming now instead of this unknown bottom somewhere out in the horizon.
My point was…the money will be extended to first time home buyers we all know this is going to happen.
If we are going to do that why not give the credit to all buyers.
I used to live in Carlsbad now I live in Bend OR. At first the idea of a sliding market was exciting as a buyer. The problem is I actually get to know my neighbors let my kids play with their kids etc… and it is getting sad.
The market has fallen about 40-50% and there are many people waiting it out to purchase. I think the credit would bring those people to the table and maybe bring in some sort of bottom. Otherwise people are just going to forclose, free rent, then walk away. In that case the bank takes the hit and hits up the GOV for $$$$
Not everyone was a dubios investor or greedy shark. The majority of homeowners are just like you and me trying to provide for the family and have a place to live.
How low do people want the market to go? How many forclosures and pain over the next 3 years do people want?
This mess started with housing and until housing is stable there will not be a recovery.
MJ,
“Market Manipulation? Meh. Same charge was rendered during FDR’s wanton “new deal” spending. At the time there was tremendous carping about just “letting the market work” and “only delaying the inevitable”.
Both are true, but weve been able to squeeze 70 years out of govt manipulation – and were still here. I wouldnt be surprised if we get another 50 years or so out of this next round.”
The reason the “New Deal” worked was because at the time the United States was on a gold standard. Meaning if the government traded future promises to pay to gain cash to create “stimulus” in the present it was no big deal because investors could trade cash back in for a commodity. Pegging the dollar to a commodity kept governments ability to borrow relatively in check.
But now the gold standard is no longer in effect and government is trading paper promises to pay in exchange for paper money the government is printing.
Do you see the potential problem?
Miguel: “How low do people want the market to go? How many forclosures and pain over the next 3 years do people want? ”
A lot. What you call pain I call a sobering up. Sure it’s not fun, but it’s unarguably a good thing.
Miguel wrote:
The market has fallen about 40-50% and there are many people waiting it out to purchase. I think the credit would bring those people to the table and maybe bring in some sort of bottom. Otherwise people are just going to forclose, free rent, then walk away. In that case the bank takes the hit and hits up the GOV for $$$$
——————-
If your market has already fallen 40-50%, chances are you’re much closer to the bottom than we are. Some people in the San Diego area have recently been able to sell their homes for more than the 2005/2006 prices. I’d like to see what the prices around here would be without any intervention.
The truth is, the people hanging on by a thread will still likely end up losing their homes. While we may see inflation, I doubt housing prices will rise significantly unless the govt keeps pumping money into the housing sector.
If the govt stops manipulating, prices can fall, people will be foreclosed on — and they can rent just like the patient bubble-sitters have been doing for years — and new, responsible people can buy the houses at affordable prices, which will free up money that can go to more productive endeavours in the economy.
Housing is NOT what got us into this crisis. Too much DEBT, and the corresponding high prices, are what brought us this crisis. The solution to the crisis is to eliminate the debt via foreclosure, and allow people to buy at **sustainable** prices with plenty of skin in the game (minimum 20% down), and solidly underwritten mortgages that can be paid off within 30 years.
Do we want a strong dollar and affordable housing (low prices, not gimmicky loans/low rates), or do we want a currency crisis and unaffordable housing? To me, the choice is obvious.
Another would-be first-time buyer here.
I’ve been paying massive taxes for decades, subsidizing other people’s mortgage interest deductions. And we all know the average homeowner gets little if any benefit from that deduction — it’s really a subsidy for the upper middle class.
Face it, the McMansion owners are the ones who’ve really been living off government cheese all these years. It’s time for the rest of us to get a slice.
Miguel your reasoning is disturbing to me. You basically said the whole system is rigged, so as long as they throw a few sheckles your direction then you’ll go along. Perhaps it’s been so long that people have seen a healthy market that they wouldn’t recognize one if they did.
As another poster pointed out, if your area is already down 50% and has corrected to the fundamentals, the worst is over. But there are still areas going through their corrections and they need to have this enema so they can get healthy.
I do not think I explained my thinking very well…I am not for any propping or stimulous but it is coming regardless so why not have it make an impact. It is not going to all the hard hat jobs that we heard about….
All the stimulous money that we are spending or are going to spend does very little stimulating.
Giving all taxpayers a credit vs only first time buyers would stimulate much more than previous attempts in my opinion.
I am not saying “Give Me MY MONEY”…I just do not think the trillions that have gone out are going to help the average tax payers.
Just last week the Obama administration upped the 10 year budget by 2 Trillion. The money is going to be spent like it or not so why not have it make an impact.
Jay jay said, “Perhaps it’s been so long that people have seen a healthy market that they wouldn’t recognize one if they did.”
I think this is all too true. What has made the market unhealthy? I’d chalk it up to a cancer known as Wall Street.