As soon as the April 30th tax rebate deadline passed for new sales contracts, so did the brief spike in housing sales. Subsequently, May and June have seen a decline in pending sales.
Other than homes under $100,000, the only other sector of the housing market that continues to show strength is rentals which, in effect, is blood money from distressed and displaced homeowners. They’ve got to live somewhere!
Outside of those two areas, the real estate market has become eerily quiet. Without the tax rebate, buyers are sitting on the sidelines and many sellers have become increasingly resigned to being “underwater” to the point that many of them are now opting for foreclosure versus a short sale. Sort of an oxymoron, don‘t you think, given that short sales can take several months to process, effectively becoming a long sale? People just want to get on with their lives. No one is comfortable living with a foreclosure hanging over your head and you can’t build a retirement nest egg on negative equity.
Essentially, the housing market has demonstrated that it is unable to stand on its own feet without a stimulus. The tax credit needs to be extended to Dec. 31, 2012 which coincides with the expiration of the IRS exemption from capital gains tax liability on unearned income or debt forgiveness. This exemption was primarily intended for those homeowners who chose to short sale.
Right now there are close to 10 million residential mortgages 30 days or more past due in America. In the Phoenix metro area alone, it is estimated that another 50,000 homes will be lost to foreclosure before the end of the year! Most of these homeowners are “underwater” meaning they owe more on the loan than the house is worth. In Arizona, for example, most people who are behind on their mortgages are 30-50 percent underwater. People have come to realize that they may pass away before their homes are ever worth as much as their mortgage.
Banks must refinance those homeowners who are underwater at fair market value. These loans must be fixed rate mortgages for 30-year terms. To date, what we hear is that there is no way banks will forgive any principal balance. What do banks believe that a short sale is? It includes the reduction of the principal balance owed on the property in order to induce a buyer to make an offer. What’s so wrong with refinancing those families who already live in the house now at fair market value and stop all this insanity? We’re all running around like mice in a maze looking for a place to sleep. Banks have played the moral and ethical obligation card one too many times. Reality trumps ideology.
I don’t care how many times you offer to modify a homeowner’s monthly payment. If you don’t have a plan for keeping families in their homes long-term, it doesn’t matter!
OK, how much is this going to cost. By my estimates, the tax credit is going to cost us about $70 billion and the underwater refinance approximately $1 trillion. We have already spent or have committed to spending over $2.5 trillion to fix our housing problem and haven’t yet succeeded.
Extending the real estate tax credit, coupled with the refinancing of underwater loans, will go a long way toward taking the word crisis out of housing.
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Jon Beydler is a 32-year Valley resident and the former mayor of Fountain Hills who now lives in Chandler
Masterrogue666 posted at 6:05 am on Thu, Jul 8, 2010.
Jon: I object to your claim: "the only other sector of the housing market that continues to show strength is rentals which, in effect, is blood money".
The fact is that there are many rental places available, so rental income is down as well. If there is any blood being spilled, it's those that own the rental property...
Rich posted at 8:20 am on Thu, Jul 8, 2010.
Banks got out of the real estate business and into the money business when credit became a part of the transaction for a mortgage. When the property stood as security, banks had to stay within loan value and couldn't finance more than a property was worth, based on its production (rental). When mortgages became contingent on credit, rather than value, the bubble started inflating, and, in the long run bankrupted both banks and buyers. Banks, in the money business and not the real estate business, could only go broke, they lacked the expertise to deal with the real estate they owned.
A mortgage needs to go back to being a mortgage, a secured loan, no credit rating needed. Banks have been bailed out with everybody's money, everybody should be able to get a mortgage, regardless of credit. This would force banks not to inflate appraisals, but to lend responsibly on secured property and in the case of default to dispose of the property responsibly, without losing on the proposition. It would open the market to its true demand.
Credit and credit reports are the problem. It should be illegal to ask for one on a secured loan such as a mortgage. When you do you constrict the demand and gut the market. Banks, bailed out by the public, need to get into the real estate market and out of the money business in real estate.
VofReason posted at 1:58 pm on Thu, Jul 8, 2010.
When did Wojohowitz of Barney Miller get his own column? Yes, lets keep the tax credit going so that more people who can't really afford the home their buying can buy it anyway. Then, we can force the banks to refinance to some number they can actually afford 3-5 years from now. Sounds like great economic policy. This guy is a genius