More Federal Stimulus

I wanted to write about something else today, but the news of the morning dictates that I steer a different direction. I was driving down North Walworth Road, taking Thomas to school, telling him about how he needs to be a leader, not a follower. He wore a pink shirt the other day and some of the kids made fun of him, so we had to do a little explaining about how to be a trend setter and not a follower. I told him I wear pink shirts often (I really do), and that if he wore a pink shirt a couple times a week for the next couple months, eventually kids would start wearing pink shirts too. I told him it’s sort of like his dad writing a silly blog, and how after a while, all the other agents tried to start writing blogs too. Notice I said tried…

Life lessons for six year olds aside, there’s a bigger lesson out there waiting to be talked about today. I’m driving to school, listening to John and Cisco on AM 560, and heard that the first time home buyer tax credit is indeed going to be extended. Not only is it going to be extended, as I told you it would, they’re including a provision for a $6500 tax credit after a real estate purchase for anyone who has owned their primary home five years or longer. Being the time proven expert on all things real estate, I called into the radio show and began my diatribe on tax credits and the extent that they’re working or not working, and what the real solution might be. Just as I got to the solution part of the call, Big John interupted me and my call was over. Apparently he didn’t know who he was talking too. Oh, and then he jokingly said how you should make an offer of 20 cents on the dollar and you’ll get the property because Lake Geneva is suffering too. Nice try Big John, but if you’re looking for that sort of a deal you have to head to the other side of the angry green pond and visit a quant little village called Detroit.

First, some self congratulation is in order. While other Realtors feverly pitched the tax credit expiration date as an ignorant call to action, I knew better. I knew the tax credit wasn’t going to actually expire, yet Realtors lined up and pedaled the expiration date as yet another annoying sales pitch. It was really troubling to watch, and anyone who’s been paying attention to the world around them has undoubtedly seen ads and blogs where Realtors were spewing this short sighted mantra. Real estate is as much about understanding market conditions and the way policies affect housing just as much as it’s about driving around people in the back of a leased car. I’d like to treat my clients and would be buyers with a little more intellectual respect, and that’s why I’ve been telling you for months that the credit wasn’t going anywhere.

With delinquencies still rising, even this administration realizes that they can’t snuff out the recovery before it even begins. They weren’t going to extend this tax credit a month or two ago, because they wouldn’t have cashed in on the Realtors doing their best sales job on behalf of the federal government. They waited until now, when, with about 30 days left for the initial credit, most buyers realize that they won’t be able to write a contract today and close by the original November 30th deadline (buy a Lake Geneva home and I can close in three weeks). I continue to believe that the tax credit isn’t moving the market, and the biggest piece of evidence for that theory is that pending home sales declined in September. If the tax credit was indeed moving the market, we would have seen a rush of sales in September, as buyers scrambled to cash in on the “expiring” credit.

Now that the first time home buyer tax credit is going to be renewed, what’s the deal with this new $6500 credit? As I understand it, and I must say that this understanding is quite basic as details are yet to be made available, if you’ve been living in your primary home for 5 years or longer, and you’d like to buy another home for investment or second home use, you can purchase and qualify for a $6500 tax credit. Ok. Here’s the deal. $6500 isn’t going to be enough of a stimulus to move the market, sentence and period. And what’s with the targeted credit yet again? Why do you have to have lived in your current home for 5 years? Oh, and sorry if you make a decent wage, because in their perpetual quest for fairness, if you make over $125k a year as an individual or $250k a year as a couple, you’re not eligible. Your success is shameful to the administration (an administration rife with millionaires). In the past five years, I’ve lived in a dizzying 6 homes, so since I’m a literal mover and a figurative shaker, I don’t qualify in that regard either. Come on now Obama, where’s the fairness in that?

The tax credit will fail again at propping up the market in a way that is meaningful and lasting. While I’m generally against government handouts, I will admit that if we’re going to try to stimulate the economy, housing is a great place to start. But if we’re going to stimulate the housing market, why can’t we at least get it right? Why can’t we either make a stimulus available for all in a significant way, or simply target the actual problem that continues (despite the signs of growth this summer) to drive prices downward?

The problem remains distressed property (REO’s, shore sales, foreclosure auctions), and with estimates of as many as three million homes in some sort of delinquency right now, this foreclosure trouble is going to plague us for at least another 18 months. I’d go as far as to say that there’s going to be a new elevated norm in the foreclosure and delinquency rates, as social and cultural acceptance for foreclosures spreads. In other words, if you were foreclosed on ten years ago, you were a bit of an exception. If you’re foreclosed on now, you’ve just gained all too easy membership to a club that is anything but exclusive.

For now, let’s see how this most recent tax credit shakes out, and watch to see what shape the credits take when the bill is finalized and implemented. Chances are it’s going to be much like I described above, misdirected, and unfortunately ineffective. To say nothing about cost, which when viewed in comparison to the health care disaster and what it’s going to mean for private policies, is a drop in the ever leaking bucket.