I continue to be amazed by our version of "Stimulus" in this country. I am under the impression that there is a genuine disconnect from Main Street to the Halls of DC where they come up with this stuff. If anyone is under the impression that simple dollars spent is the answer to what ails this economy, I would say they have another thing coming!
Like you, I have been bombarded by news media, special interests and trade organizations all saying they have the magic bullet. My own industry (the National Association of REALTORS) laid out a plan inpartnership with the Home Builders that would have had a great impact on my own business! At the end of the day, that part of the Stimulus package was pared back to a smaller dollar amount that is very focused instead of very broad. Here are some details.
The First Time Homebuyer Tax Credit has been in place since last fall and offers a $7,500 credit to only FIRST TIME buyers. The credit is claimed when filing your tax return and MUST be repaid over the course of 15 years. Not a bad deal - but simply amounts to an interest free loan.
THE GOOD?: Gets a few first time buyers off the sidelines. And they are entrenched there!
THE BAD?: In our market, there is limited inventory for first time buyers - and that means a tight market becomes even tighter! The problem is that the mainstay Seller/Buyer is NOT moving right now - they are simply staying put and waiting for improving market and credit conditions!
THE UGLY!!!: Most First Time buyers really need that $7,5000 for their down payment and closing costs, but the real estate lending community has not found a way to deal with this! To me, that's the real ugly part of the current deal! You can't even use the credit unless you have some serious cash tucked away! That just means more buyers will stay on the sidelines!
Proposed in Senate Bill:
A Home Buyer Tax credit - NOTE - The word "First" is missing from this! Now talk about stimulus! I don't think anyone will argue that real estate has been part of the problem (actually, speculation has been the problem - real estate, oil, commodities, etc.)! This provision wouldÂ actually move the market! Across the board benefits in the amount of $15,000 to all those interested in buying a home! Wow!Â In addition, the purchase has to be a primary residence so we eliminate flippers and other speculative purchases. The credit still has to be paid back, so in essence it is an interest free loan. I find it interesting how the folks in DC calculate the cost and don't talk about the fact that it has to be paid back!
THE GOOD?: Across the board, this one just gets people off the sideline and actually moving!
THE BAD?: It could lead to a decrease in inventory which means rising prices (supply and demand), but is that really such a bad thing?
THE UGLY!: We still have not championed an effort to get capital flowing back into credit markets. As credit standards have tightened, there are a lot of would be home buyers that are now forever cast as "renters'!
And what is really going to happen...
None of the above! The folks in congress thought it better to make it up as they go along. The folks in the halls of congress know better than industry - right! Instead of the deals above, it looks like we will have an $8,000 FIRST TIME Home buyer Tax Credit - that does not have to be paid back. WHAT??? The folks in DC are saying this is less expensive, but to me this sounds like the kind of deal that got us in trouble in the first place, only this time we are giving permission!
Let me explain. If I loan you $15,000 and don't charge interest, the cost of the moneyÂ is really only thatÂ I don't collect interest, but probably have lost interest had the money been invested elsewhere. If I GIVE you $8,000 with tacet approval that you doÂ not need to pay it back, I have just pumped money in with no hope of ever seeing it again! How can a gift of $8,000 cost theÂ taxpayersÂ less than a loan of $15,000? Sounds like the new voodoo economics to me!!!
As the Wall Street Journal said earlier this week, "A dollar doled out in jobless benefits may well be spent by the worker who receives it. That $1 of spending will count as economic activity and add to GDP. But that same dollar can't be conjured out of thin air. The government has to take that dollar away from someone else -- either in higher taxes, or by issuing new debt in the form of a bond. The person who is taxed or buys the bond will have $1 less to spend. If the beneficiary of that $1 spends it on something less productive than the taxed American or the lender would have, then the net impact on growth will be negative.
My worry is that by favoring a "gift" over an interest free loan, we will only pile on the negative growth. The dollars are just gone and are only there to benefit a very few rather than all taxpayers in the market place!
That's all for now! Please let me know what you are thinking out there!