Robert Worthington is right. Do you want to know how right he is? According to Goldman Sachs, who ought to know about government intervention, the feds interventions into the housing have pushed home prices 5% higher on a national average than they would have been otherwise, Goldman Sachs estimates in a report released late Friday.
The government over the past year has slowed the pace of foreclosures through moratoria and the drive to modify mortgage terms to keep more borrowers in their homes. It also has pumped up demand for housing by giving tax credits to many first-time home buyers and by driving down mortgage interest rates. As a result, home prices in some areas have risen in recent months, particularly for homes that appeal to investors and first-time buyers. Bidding wars for the more attractive bank-owned homes have become common.
But these artificial props won’t last forever and may have created a false bottom in the market. “The risk of renewed home-price declines remains significant,” Goldman economist Alec Phillips writes in the report, “and our working assumption is a further 5% to 10% decline by mid-2010.” – WSJ
If they’re right, rather than a healthy market heading into 2011, what do you think we might actually have? We could be looking at falling home prices, rising interest rates and a government whose currency is faltering. Does it sound like a double dip? Will you be happy that the functions of the market were tampered with once you realize the misery has been extended, for years? Remember to say thanks to the NAR, thanks to the NAHB, thanks to the Feds and most of all, thanks to us realtors who supported the larceny. But, at least you may have universal access to a health care waiting list.
Keith Lutz says:
BTW, That is a dead link.
I think we needed something, back then, but now it is getting ridiculous. Have buyers sitting on the fence even longer now. Someone needed to push them. At least they did not offer more of an incentive, like $12,000.
October 29, 2009 — 2:48 pm
Stephanie says:
Hi all,
Curious, wouldn’t the $8k encourage spending in all of the housing related services and industries (lawyers, trades people, home improvement stores, design and decor businesses) as well as local businesses and thereby stimulating the economy?
I’m asking with the greatest sincerity, I’m in Toronto, Canada, I’m not an economics major and I really don’t know enough about the situation to comment, so I’m asking for more insight.
Best,
Stephanie
October 29, 2009 — 3:04 pm
Mike Mullin says:
Al, I’ve been thinking about this a lot today. Maybe it’s because I read on CNN how the recession has officially ended and the Dow takes a big jump…yet foreclosures are, and will continue, to increase. So will BK’s. New home starts? Down.
Then I realize the stats really don’t matter. The economy WILL turn around.
But the reality is that for…I’ll say two more years…a lot of people across the country are going to feel like they are in a financial vice grip. It will not feel like a recovery.
And the recovery will be different for each community. My gut tells me Spokane, WA is only off the peak by about 10%. I know you are in a retirement and second home community so you may be off more.
But yesterday I talk to my buddy in Las Vegas and he just came back from attending a RE guru who told them close to 70% of the home owners in Las Vegas are in a negative equity position. 70%! You think that market is going to turn around any time soon? It might be a full decade before that community looks like it’s alive again.
I’m tired of using my tax dollars bailing out big banks – my competition! I’m ready to let the chips fall where they may. We’ve all got to make our own way through this mess and bailing out one group of people is at the exclusion of some other deserving and needy group.
October 29, 2009 — 3:09 pm
Don Reedy says:
Al, this is all Geno Petro’s fault. He flew 150 miles past his appointment he had with the head of NAR at which he was going to explain the simple facts of government intervention.
Fortunately, though, he had his laptop with him, and was able to schedule himself onto the health care waiting list.
October 29, 2009 — 3:21 pm
Al Lorenz says:
@Keith & Stephanie, Edmunds.com, the premier resource for online automotive information, has determined that Cash for Clunkers cost taxpayers $24,000 per vehicle sold.
The housing credit is the same thing. These are poorly targeted benefits that a bunch of people get who would have bought anyway. Earlier estimates were that the Home Buyers tax credit would cost $43,000 per incremental home sale. That was based on NAR estimates of incremental sales of 350,000 new sales.
I’m seeing reports today that the actual number of incremental sales looks closer to 200,000. If that is the case, each incremental sale, as the program is now, actually cost $75,250 in government money. No, there aren’t housing related services and benefits of nearly that amount. The cash for clunkers costs were virtually what it would have cost to just give the cars away to the people who wouldn’t have bought without the benefit.
Now, imagine that the eligibility of the tax benefit is broadened to a higher income spread and to those who already own homes. That will hit even fewer “incremental” buyers and more tax benefits will be given out for each incremental sale. I wouldn’t be surprised if some of the current proposals wouldn’t end up costing nearly $300,000 per incremental home sale. I typically like programs that allow people to keep their tax money. But, this one is awfully expensive and poorly targeted to achieve actual benefit for the real estate market. Distorting the market doesn’t help the market when the distortion ends, prices drop again and the people who shouldn’t have bought are foreclosed upon, again.
October 29, 2009 — 4:17 pm
Al Lorenz says:
@Don: I’m thinking of sending a check to all my Senators and Congressmen, and maybe a check to all those running against them, with a note telling them they’ll get another one every year I receive good medical care. I’m thinking of it as a spin on medical “self insurance.” In a thugocracy, who you know is going to be key to getting the care you might need. I’m sorry to hear they pulled Geno’s pilot’s license.
October 29, 2009 — 4:26 pm
James Boyer says:
OK, I have never been very happy with the $8000 home buyer credit as it was put to us this past year. At least for my area, most people could not qualify for it anyway. Not because they were not first time buyers, but because in this area, even 2 bedroom condos go for 350K to 450K and the income required to purchase such a condo made all but one of my clients to rich by government standards to qualify. Dumb Dumb Dumb, Why give a tax brake to buyers in all those low rent states, and not to the people who pay in a much higher percentage of the taxes collected by the federal government. Not exactly fair or smart. To me it smack of a continuation of the federal government subsidizing the southern and western states at the expense of the states of the North East.
October 29, 2009 — 5:14 pm
Greg Dallaire says:
It’s one thing to stimulate the economy with our tax dollars, but another whole ball game when we’re going deeper into deficits to accomplish this. We don’t have the money!
The idea seems all hunky glory but the reality will set in this false bottom will eventually surface and dig us deeper, not out of it.
October 29, 2009 — 8:23 pm
Jeff Brown says:
The Dems keep ‘stimulating’ our economy with our tax dollars. Reagan stimulated the economy by giving us back our tax dollars. It ain’t rocket science, is it?
October 30, 2009 — 8:57 am
matt mathews says:
As I write this comment, the Senate Just approved an extension of the $8K credit thru Apr. 2010 + another $6500. for any second time buyer’s who have own their home for at least 5yrs. In addition, the Feds are requiring all the Big Banks/Lenders/servicing agents to provide info on all the Alt-A paper mortgages facing foreclosure. Calif. holds over 58% of all Alt-A paper. Not sure what their intentions are but you can bet another bubble, bailout & band aid is forth coming. Maybe it’s time for a Agent/Broker Tea Party march on Washington and while we’re at, a hostile takeover of the NAR. GO FOX NEWS!!!!
October 30, 2009 — 10:50 am
tmongan says:
The extension isn’t a done deal but it is sure close! Its kinda scary all the money being thrown around.. I just wonder what will happen when it runs out, Then we will see the true bottom.
October 30, 2009 — 12:15 pm
Ashlee says:
I agree that some very deserving people got left out of the tax credit. Just because they make money they cant have the tax credit? Doesnt make any sense to me but that is the government for you!
October 30, 2009 — 8:13 pm
Louis Cammarosano says:
Al
Isn’t the interest rate deduction already a form of government stimulus? I suppose the difference is that it is somewhat of a permanant feature of the economy, whereas the first time home buyer credit is a temporary “stimulus”
I suppose its necessary to get a new generation on the interest treadmill to sustain the banking industry and its support services
October 31, 2009 — 8:19 am
Sue Zanzonico says:
Don, thanks for pulling up some humor to the situation. Your comment gave me a good laugh.
November 1, 2009 — 7:29 am
Al Lorenz says:
@Louis Yes, the interest rate deduction already distorts the market. It is more of a permanent fixture, which I personally think should go away too!
November 1, 2009 — 9:26 am
Don Reedy says:
@Susan,
You New Jersey gals just get it! Thanks.
By the way, I’ll be in San Diego doing my shtick during the NAR conference. Geno will be in Baja, about 150 miles south of San Diego.
November 2, 2009 — 3:18 pm