Buying Real Estate in a Stimulus-Bailout World
Real estate sales increase compared to last year. Hooray! But wait. Last year was the lowest point in a plunge in sales that started around 2006. So sales being up compared to that low, low point doesn't mean all that much, does it? You don't need to be an economist, an analyst or have an MBA to figure that one out. It's just common sense.
But in spite of it all, Stimulus/Bailout America forges ahead. We may see the $8,000 credit for new homeowners extended to next April. Add to this a new credit: $6,500 for existing homeowners. To do what? To buy another home. Why? Why not. It creates "economic activity."
Read our last blog. It talks about this kind of "economic activity" - the kind stimulated by government. It talks about how Stimulus/Bailout America can distort prices. Now a few more thoughts about this.
Let's say I've been looking to buy a house. I've been looking for a few years now. But I had this bad feeling about the prices I was seeing when I started looking in 2004. They just seemed high. At least they were too high for my blood.
So I figured I'd just hang in there and wait. I mean, can prices like this just keep going up. Sure, lots of real estate people said they could. Even some regular folks thought this. They must have, considering real estate sales soared during the years that the prices of homes soared. (To me, it just seemed insane.)
So now I should be happy, right? Prices have dropped. But somehow I'm still feeling uncomfortable about buying a house - even now.
First of all, I'm being told that real estate is "more affordable" by the same folks that told me they were affordable when they weren't affordable. And that includes some of the folks who bought when they weren't affordable. ("I wish I had waited until now. I could have gotten this house for 20% less!") They didn't know what they were talking about or doing then; why should they now?
But that's not the only reason I'm uncomfortable. I'm wondering about these "credits" people are getting for buying a home. How much does this distort the price of housing. It goes like this: if government's offering incentives to buy, maybe the price of houses hasn't fallen as much as it should have - that is, would have if it weren't for the government incentive.
So if I buy now, doesn't that mean I'm still buying when the price is too high?
Well, no matter. The price was so darn high back then, even the 20% drop so far hasn't really brought the price into my range. And I'm sure as heck not going to take on a huge mortgage at this point and buy some real estate at what I'm thinking is a high price.
Of course, I don't really know. Those government incentives could be propping up the price of real estate. "Could be" means I don't know for sure.
So Stimulus/Bailout America does more than just distort prices. It also distorts our thinking about prices. It's adding an element of uncertainty that wasn't there before. At least it is for some of us.
But in spite of it all, Stimulus/Bailout America forges ahead. We may see the $8,000 credit for new homeowners extended to next April. Add to this a new credit: $6,500 for existing homeowners. To do what? To buy another home. Why? Why not. It creates "economic activity."
Read our last blog. It talks about this kind of "economic activity" - the kind stimulated by government. It talks about how Stimulus/Bailout America can distort prices. Now a few more thoughts about this.
Let's say I've been looking to buy a house. I've been looking for a few years now. But I had this bad feeling about the prices I was seeing when I started looking in 2004. They just seemed high. At least they were too high for my blood.
So I figured I'd just hang in there and wait. I mean, can prices like this just keep going up. Sure, lots of real estate people said they could. Even some regular folks thought this. They must have, considering real estate sales soared during the years that the prices of homes soared. (To me, it just seemed insane.)
So now I should be happy, right? Prices have dropped. But somehow I'm still feeling uncomfortable about buying a house - even now.
First of all, I'm being told that real estate is "more affordable" by the same folks that told me they were affordable when they weren't affordable. And that includes some of the folks who bought when they weren't affordable. ("I wish I had waited until now. I could have gotten this house for 20% less!") They didn't know what they were talking about or doing then; why should they now?
But that's not the only reason I'm uncomfortable. I'm wondering about these "credits" people are getting for buying a home. How much does this distort the price of housing. It goes like this: if government's offering incentives to buy, maybe the price of houses hasn't fallen as much as it should have - that is, would have if it weren't for the government incentive.
So if I buy now, doesn't that mean I'm still buying when the price is too high?
Well, no matter. The price was so darn high back then, even the 20% drop so far hasn't really brought the price into my range. And I'm sure as heck not going to take on a huge mortgage at this point and buy some real estate at what I'm thinking is a high price.
Of course, I don't really know. Those government incentives could be propping up the price of real estate. "Could be" means I don't know for sure.
So Stimulus/Bailout America does more than just distort prices. It also distorts our thinking about prices. It's adding an element of uncertainty that wasn't there before. At least it is for some of us.
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