Over the last couple of years foreclosures and what impact they have had on the housing market is a hot topic. Government involvement and deregulation of the financing industry to allow low income families be able to buy homes seemed like a good idea. But when those policies were put into practice, it proved to be a horrible idea. It is my opinion that it was congress that got us into this, but shouldn’t be congress that gets us out. Or should it?
I do believe that there are good people that have been hurt by this downturn and deserve a hand up, but not a hand out. When government tries to control markets, it seems to delay the inevitable. For instance, remember the home buyer tax credit that was offered a couple of years ago to first time home buyers and then extended to sellers that had been in their homes for at least two years prior and were buying up. Well, when that was being offered, many people jumped into the market in order to receive their tax credit of up to $8,000. Those people may not have been in the market to begin with unless that credit was offered. Seemed like a good idea to kickstart a struggling market, right? What I noticed, is that there was increased demand for homes during that timeframe and there were bidding-wars going on for many homes. In turn, it caused some buyers to spend a bit too much for homes just to get the deal done within the time allowed in order to receive the tax credit. Simply overspending just to get the credit. In a lot of those bidding-war cases it turned out as a wash or even worse. i.e., say a buyer spent $10,000 or more just to procure the home from the other buyers they were facing in the bidding-war just so that they could receive an $8,000 tax credit. Silly? Yes. Did it happen in some cases? Absolutely. This caused temporary high demand for housing. The tax credit offer came to and end over a year and a half ago. how’s the market faired since? Not the best… In fact, once the credit offer timeframe ended, so did the demand, and prices dropped substantially. This was a double dip for those buyers that overspent. The home they bought was at an inflated rate to begin with, and was now worth even less than it was when the bidding-war began. So, how well did the government’s involvement help that particular family?
Recently, Mitt Romney, Republican Candidate for the 2012 Presidency, suggested that policy makers keep their “mitts” off of the housing market and let the foreclosure market “run it’s course.” So we are clear, I am not endorsing Mr. Romney. But I have to say, I do see where he is coming from, to an extent. We’ve seen what government intervention has done to both help and hurt this housing market. President Obama is making it easier for “under water” homeowners to re-finance their home and possibly save it from foreclosure. Done right, this can provide a family with monthly savings that can be used to keep the family home and ultimately stay out of the hands of the banks. Once it becomes property of the bank as a foreclosure, it simply exacerbates the declining market. So, to try and nip that in the bud, I think, is a good idea as well. Let me, once again, be clear, I am not endorsing Mr. Obama either. So, where do we go from here? I agree with Romney on leaving the market alone, and I agree with Obama when it comes to helping these good homeowners out. I guess it is safe to say that I am glad that I am a Realtor and not President! Good or bad, tinkering with a market is always dangerous. Where is it appropriate to tinker? When is it appropriate to tinker? And how is it appropriate to tinker? Good questions. We’ve learned a lot over the last half decade, so let’s hope that that new found knowledge is used wisely, or we are in for a long recovery.