Is it time to buy a new home yet?
...not unless you're buying "dirt cheap." Prices may have a ways to go (down) before they settle on what you'd consider bargain territory. And now the government's involved in housing (and just about everything else, it seems, in the economy).
Caroline Baum of Bloomberg summarizes the government's $75 billion housing subsidy (bail-out) in her March 10th column:
"If you are a homeowner who overreached on your mortgage and are experiencing a financial hardship, the government has a deal for you.
If you are experiencing financial hardship but didn't overextend to buy your house, take a number. Renters who can't meet their monthly payment get the shaft as well."
Thomas Lawler, founder of Lawler Economic and Housing Consultants, said "The renter gets nothing, except his taxes go to helping the homeowner!"
Lawler does go on to say that the program will go on to help a considerable number of homeowners, but at considerable cost to the government.
The whole idea is that by keeping people in their homes, fewer homes will be foreclosed and sit empty, thereby driving the prices of other homes. So all homeowners (not renters, of course) will benefit.
Is that what this program will accomplish? Andy LaPerriere of ISI says that you may see as many as 1 million homeowners benefitting, therefore keeping 1 million more homes from slipping into foreclosure and further adding to the already swelling 14 million homes sitting vacant in the U.S. At least it's something.
Except that the government's claim is that this program will "save" 3 -4 million homes. LaPerriere explains:
"Home prices are too high relative to income, demand is collapsing, credit is tight, unemployment is rising and wealth is being destroyed. The most it will do is change the trajectory at the margin of how fast home prices will fall."
And here's the problem with that: this is not the first bail-out of homeowners the government has tried, going back to 2007. The others haven't done much. If this one doesn't do enough, do you think we may be in store for yet another?
On a practical level, if La Perriere's comments are on target, it would be hard to justify investing in residential real estate at this point - especially if you want to turn a profit on your investment anytime soon.
Caroline Baum of Bloomberg summarizes the government's $75 billion housing subsidy (bail-out) in her March 10th column:
"If you are a homeowner who overreached on your mortgage and are experiencing a financial hardship, the government has a deal for you.
If you are experiencing financial hardship but didn't overextend to buy your house, take a number. Renters who can't meet their monthly payment get the shaft as well."
Thomas Lawler, founder of Lawler Economic and Housing Consultants, said "The renter gets nothing, except his taxes go to helping the homeowner!"
Lawler does go on to say that the program will go on to help a considerable number of homeowners, but at considerable cost to the government.
The whole idea is that by keeping people in their homes, fewer homes will be foreclosed and sit empty, thereby driving the prices of other homes. So all homeowners (not renters, of course) will benefit.
Is that what this program will accomplish? Andy LaPerriere of ISI says that you may see as many as 1 million homeowners benefitting, therefore keeping 1 million more homes from slipping into foreclosure and further adding to the already swelling 14 million homes sitting vacant in the U.S. At least it's something.
Except that the government's claim is that this program will "save" 3 -4 million homes. LaPerriere explains:
"Home prices are too high relative to income, demand is collapsing, credit is tight, unemployment is rising and wealth is being destroyed. The most it will do is change the trajectory at the margin of how fast home prices will fall."
And here's the problem with that: this is not the first bail-out of homeowners the government has tried, going back to 2007. The others haven't done much. If this one doesn't do enough, do you think we may be in store for yet another?
On a practical level, if La Perriere's comments are on target, it would be hard to justify investing in residential real estate at this point - especially if you want to turn a profit on your investment anytime soon.
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