Should We Let the Market Fall? Part 2

In my entry yesterday, I blogged about the NYT article talking about what's happening in the current market (very little) and what could or should be done about it. The first issue I discussed was the possibility of a double dip, and whether that would happen. Today I have a suggestion about the type of governmental intervention that might prevent further declines.

All of the efforts to date ($23 billion in tax credits) have been focused on homebuyers, particularly first-time homebuyers. As I have opined before, first-time buyers are the most likely to buy no matter what market conditions might exist at the time they are ready to purchase. Since interest rates are low, and prices have come down somewhat, and since they have nothing to compare those prices to, they should be motivated already. The problem is that there is little well-priced product out there for them to buy, low sales notwithstanding. The inventory lacks homes which are not even being marketed due to current conditions, and many that have been on the market too long and for too much.

Why shouldn't the Federal government consider a one-time tax credit for sellers, maybe as a percentage of the loss in value that they have incurred, or maybe as a credit when they both sell and then buy? Many people would not even qualify, just as many buyers made too much money or bought houses too expensive for the homebuyer credit. Some have lived in their homes for so long that they would never lose money when selling, and some will sell but not purchase again. However, it would be a strong signal from the government that sellers need to lower prices before the market can move again. If that could be accomplished for the same price tag as we incurred giving an incentive to buyers, it might free up the whole sales chain. Buyers who can't buy because they already own a home they can't sell would then trade up or move, and people who just can't stomach not getting what they would have gotten a few years ago might feel that the tax credit made up for that, at least in part. There are many details to be worked out, but something needs to happen, and I don't think that even job creation will change the perception about the current state of real estate without some sort of outside help. Waiting around is costing us all time, money, and sound sleep.

Should We Let the Market Fall?

There's a very interesting article on the front of today's NYT business section about the differing predictions as to future real estate prices, and what to do about the flailing state of demand. Some experts think that real estate has been overvalued for the past couple of decades at least, and that the medium-term future upside will be limited to minor price increases. Those people often believe that we are at the beginning of the dreaded "double dip", and that real property prices will drop again.

Other experts feel that real estate is a luxury good, and that people will spend more on housing if they can. As my most recent prior blog would indicate, I'm in that camp. Especially when you consider the age of the baby boomers, I believe that they will "nest" over the next number of years, spending as much as they can on houses where they feel that they could live in retirement, and where their children will visit them. That would argue for higher values, at least for premium properties. As people spend less on food, they are going to spend their excess income on something, and I'm betting on housing over travel (not as easy as it used to be), cars (not politically correct), and clothing (ditto). Housing is where you can express your individuality without looking like a conspicuous consumer.

If you believe this scenario, then housing will improve as soon as consumer confidence rises and remains higher. For more on governmental intervention, I have an idea about that, too, so tune in next time.