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« Ballroom Update | Main | Global Warming Update » February 18, 2008Home $weet HomeThe Nashville City Paper reports today that Sen. Lamar Alexander, R-Tennessee, is co-sponsoring legislation that would give a $15,000 tax credit to anyone purchasing a newly constructed home, a foreclosed home or a home where foreclosure is pending. The goal: boost the troubled housing market, which is somewhat of a drag on the economy right now. I'm not sure why the City Paper is covering this story today - Alexander's office issued the press release Jan. 31. From that release: "Providing Americans with this $15,000 tax credit over three years would provide a much-needed boost to the housing market and the economy," Alexander said. "This incentive will restore confidence in the housing market while preventing a housing disaster by reducing the number of unsold and foreclosed homes on the market that threaten to lessen home values and reduce homeowner equity."Alexander's trying to do a good thing here to boost falling real estate prices, which are a drag on the economy, but I think you'd get a bigger boost if the tax credit was available on all homes, not just certain homes. Update: The foreclosure wave is primarily hitting the subprime mortgage market. Subprime loans are loans made to people with sub-par credit, often with low initial monthly payments that, under the terms of the contract that the buyer knowingly signed, ballooned to much-larger payments in a few years. Subprime mortgages tend to be adjustable-rate or interest-only adjustable-rate loans. According to a fact sheet (PDF) published in the third quarter of 2007 by the Mortgage Bankers Association, 35 percent of homeowners own their home outright; 48 percent are in fixed-rate mortgages. Only 15 percent of homeowners have adjustable-rate mortgages (ARM). Only 5 percent of homeowners are nonprime borrowers with adjustable-rate mortgages. And only about 1.7 percent of all loans are in the foreclosure process. Says the MBA: Historically, delinquency rates tend to peak in the first three to five years after origination. Because more than half of outstanding loans are less than five years old, it stands to reason delinquency and foreclosure rates may rise as they age.Translation: We had a wave of home-buying a few years back (thanks to the vibrant Bush economy, I might add), and this foreclosure wave was entirely predictable as there is always a small percentage of home-buyers who wind up being unable to afford the purchase they made. Most mortgages aren't subprime, most homes are not being foreclosed on, and most mortgagees have fixed-rate mortgages, making them less likely to be forced into a foreclosure situation. The "mortgage crisis" is really just a shakeout of some bad deals in one very small corner of the overall mortgage market. A tax credit would make those homes more attractive to buyers. But, then, so will their falling prices. That's the way it always works. A few years ago, Nashville was a buyer's market for houses, with homes sitting unsold for months, and desperate sellers dropping prices like mad. 18 months later, it had flipped completely to a sellers' market, with houses selling for their asking price or higher, often days or even hours after they hit the market. This year's mortgage crisis-induced housing slump is creating the next buyer's market, which in turn will fuel another record-setting wave of home-buying, creating a seller's market and sparking more new home construction. And it will happen sooner than you think. Posted in Economy & Business
Comments
Bill, this is absolutely NOT a good idea! It's terrible! There is a very large inventory of unsold existing homes (like mine) on the market now. What Lamar wants to do is further depress that market - and it is far larger than the new-home market and for darn sure larger than the comparatively minuscule foreclosed market. The government is basically going to reward someone with 15 large not to buy my house. How is that fair? How far the Republicans have fallen from when Reagan said, "Government is not the solution, it is the problem." Thanks to Lamar, Reagan remains correct. Well, I suppose if existing-home sellers had a big a lobby - and campaign contributions - as the home builders, Lamar might have a different opinion. Posted by: Donald Sensing at February 18, 2008 8:23 PMAnother thought - this is a good example of why I've pretty much had it with the Republican party. Why should I vote for someone like Alexander again when all it gets me is a big-government meddler, basically a Democrat in disguise? I may as well vote for a Democrat who is not afraid to be known as such. Posted by: Donald Sensing at February 18, 2008 8:26 PMI agree with Sensing above. As for this: I'm not sure why the City Paper is covering this story today -- at least it's better than what The Daily Herald in Columbia occupies itself with: "Paper seeks pictures of pets wearing hats". Posted by: Donna Locke at February 18, 2008 10:50 PMThis is a terrible idea. Those of us that are not in foreclosure (and those citizens trying to sell a home to AVOID foreclosure) will be at a distinct disadvantage. In neighborhoods like mine (where there are a significant number of homes for sale that are not in foreclosure), the home values will drop even further since the buyers will be drawn to new neighborhoods and foreclosure homes. Not to mention that those citizens looking to move into a new construction home or foreclosure home will have difficulty selling their existing home (which presumbably is not in foreclosure, or they would not qualify for a new loan). The prices have already dropped by more than 5% in my neighborhood. A $15k credit will depress our values by another 5-10%. That will take years to overcome. Thanks, Senator. Glad you are thinking of your constituents. REPUBLICANS -- WAKE UP!!! If Alexander continues to offer these types of special interest legislation, conservatives MUST be ready to vote him out of office. Posted by: Chip Cain at February 19, 2008 8:37 AMThis is a bad idea. As soon as this is passed, counties will swoop in and pass impact fees or private adequate facilities taxes to share the wealth. Lamar has plenty to do without messing with this. I'll bet a cup of coffee that all of the research comes from a lobbyist. Posted by: Danny L. Newton at February 19, 2008 9:20 AMI have to agree. It's a bad plan to continue to prop up the market especially in ways that favor one sale over another. If it passes I'll probably buy another rental house because the coincidence of a bottom market, subsidized interest rates and a 15K tax credit are pretty irresistable; but it's not going to help your average homeowner at all. I'm just glad I'm not trapped in a big jumbo. The downturn has depressed more than the housing market. I know people who can't move to take a better job because they're so far upside down in current their house. Agree to all other commenters, above. Another thng this bill does is incentivize sellers to let their mortgages go into default, especially sellers who have moved into another house already and are strugglng to make two mortgages. You can put your mortgage into default by skipping as few as two payments. It then qualifies for the $15K tax break and can be so advertised. Lamar has forgotten the oldest rule of government: that which you subsidize, increases. If you start subsidizing foreclosures or near foreclosures, it will not make them diminish, it will make them increase. What is Lamar thinking? In fact, is he even thinking at all? Posted by: Donald Sensing at February 19, 2008 9:38 AMI couldn't agree more with the above comments. I have known for a long time that Lamar is a fiscal and social liberal, but this nails it, in my book. The markets need to digest this mess in its own time and any quick fix the federal government tries, will only make matters worse in the long run and prolong the agony for all. Posted by: Webutante at February 19, 2008 5:39 PMPost a comment
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