Much has been said about keeping struggling homeowners into their houses, but in the long run the question is are these people going to be able to keep up with their re-negotiated mortgage payments or are we just prolonging the inevitable? The most likely conclusion is a combination of the two. We will save some people from foreclosure but many others will be unsaveable and we will prolong the agony of falling home prices for another year or two.
The long term solution is to stimulate home buying. Prices fall because of basic economics – supply exceeds demand. To create stability or possibly higher prices the government needs to enact some home buying stimulus in order to create some artificial demand until we get equilibrium into the market.
In August congress past a $7,500 tax credit for 1st time home buyers, but this is actually just a credit that is paid back over a 15 year period. What congress needs to do is create tax incentives that are powerful enough to spark a massive home buying spree. This will get the fence sitters off the fence and create demand that will catch up to the supply and eventually raise home prices. This will slow down and eventually eliminate the majority of foreclosures as home values will once again rise above mortgage balances.
Here are some suggestions:
One time tax write off of $15,000 or 3% of purchase price (whichever is less).
Double the interest tax deduction for the first three years of ownership.
Waive taxable income on profits from investment properties purchased in 2009 and possibly even 2010.
Any thoughts on what you think congress could do to spark home buying activity?
Last week a well known local real estate broker in south Orange County made a bold prediction for 2011. “In 2011, with all of the pent up demand and the realization that Orange County is undervalued, a wave of demand will be unleashed on the market and we will return to rapid appreciation.” He is also predicting market stabilization in 2009 and slight appreciation by 2010. Will he be right?
It is so hard for most people to imagine what market conditions will be like in three years. Think back three years ago……to 2005. What was the Orange County real estate market like back then? How many home buyers predicted they would be in the situation they’re in now where price have fallen 30% to 50%? Go back two years to 2006. Look at all the buyers that still thought the housing market was going to go up for the foreseeable future. My guess would be about 90%. Otherwise, they probably wouldn’t have bought.
Now with real estate prices falling drastically over the past two years, the psyche of most home owners or potential home buyers has reversed and nobody expects real estate prices will reverse course any time soon. It will!….the question is “when”?
My next post will answer some of the factors that will be necessary to lead to a turnaround in home prices…..
Over the last couple of days the fires in North Orange County have taken over as the main topic in the daily lives of Orange Countians. As of last count nearly 200 homes have been destroyed as the fires moved through Yorba Linda, Anaheim Hills, and Brea.
Many of us have been affected by the fires, either directly through loss of home or being displaced for a day or two due to forced evacuations. Hopefully as the days progress life gets back to normal for most of us. My heart goes out to those who have lost their house in this devastating weekend of fires.
I have attached a link of some pictures I took of the fire and the devastating loss of property after the fires.
