publication date: Aug 24, 2010
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author/source: Chris Prang
My guess is, you've already seen or heard the news about
existing home sales falling off a cliff. What dumbfounds me is,
economists were actually surprised by the decline. They should have been
surprised that it wasn't more.
Check out the headlines:
"The report shows the housing industry has hit more turbulence, is not
leveling off and is worried about a nose-dive." -Mitchell Hochberg, a
principal at Madden Real Estate Ventures in New York.
What else should have happened to existing home sales? Of course they were going to decline a lot. No discerning person would purchase a home right now...unless:
- They live in an area where values don't go up and down like a roller coaster
- Paid 25% less than market value
The main reasons why people aren't buying homes are:
- THEY DON'T NEED TO! They've already bought and are staying put. Demographic shifts in the late 90's to mid 2000's drove many people to buy. They will not need to buy again (if they stay in the same area) for another 10-20 years.
- THE TAX CREDIT IS GONE! The tax credit hurt the housing market more than it helped. I wouldn't be surprised if they bring it back in some other form.
- People are concerned about the economy and don't want to take a chance.
- Easy money is gone! Half the people that did buy from 2001-2006 should not have been able to buy what they did.
- Not everyone is as foolish as the economists.
The solution for the housing market?:
- No government subsidies.
- No interest rate subsidies.
- Hurry up and let all the foreclosures come to market. Or better yet, just let the people stay in them for a much reduced payment. After all it is created out of thin air money anyway and the lender has already received its return by accepting the promissory note. An exchange of "asset of like kind" has already taken place. If more people knew this, the banks would really be in trouble. Some have figured this out and courts have ruled that they no longer owe the bank the balance of their mortgage. But the odds of that happening are slim, so just let the foreclosures happen.
- Lower business and corporate taxes so companies will stay put and invest in capital and labor. This includes health care costs!
- Lower income taxes, capital gains taxes and any tax that is unconstitutional and oppresses people.
- Make legal immigration as appealing and easy as possible.
- Then wait it out for 5-10 years.
