Thursday, October 16, 2008

Whatever Our Problems, Socialism is not the Answer

It's hard to believe that Americans will stand idly by and let a Socialist wave wash over America. There is not doubt we have problems in our country but Socialism is not the remedy. For those that doubt that Mr. Obama has a Socialist agenda, all you need to do is listen to his exchange with "Joe the Plumber".

Mr. Obama told Joe, "My attitude is that if the economy's good for folks from the bottom up, it's gonna be good for everybody. I think when you spread the wealth around, it's good for everybody." Spreading the wealth around will not move our economy forward, nor will it strengthen the soft real estate market.

What Mr. Obama proposes is akin to taking money out of one pocket to put it in another pocket. That's a zero sum game and doesn't result in more money. Oh it might help someone make a credit card payment, but it certainly isn't a long term solution to the problem of creating good paying jobs for American families. He proposes a band aid, not a solution.

We don't need to spread the wealth, we need to create and spread opportunity. By creating a climate where American business can flourish right here in the United States we can create opportunity which we can spread around.

There is no denying we all want change, but Socialism is not the answer. Socialism does not make countries stronger, it makes them weaker. If you doubt that, go check out Cuba.

Tuesday, October 7, 2008

Our Problem is a Demand, Not a Supply Problem

There has been a lot of discussion lately about what it will take to firm up the real estate market and put a bottom under the prices. Most of the discussion has been centered on the supply side of the market, with the talk centered on how to help people who are behind on their mortgages stay in their homes so those homes don't add to the supply in the market.

No doubt such an approach would take some homes off the market and prevent others from going on the market. However, foreclosed properties and those in pre-forclosure make up a relatively small precentage of all the homes currently for sale.

We do have too many homes for sale relative to the demand, but the fact remains that the number of single family homes listed for sale in Momouth County this year is about 10% less than last year for the same time period. In spite of this, the inventory levels are higher than last year.

Why is this the case? The number of homes being bought is declining at an even faster rate. Although the number of new listings has declined, the number of new sales has declined even more, resulting in an even greater oversupply in 2008.

What can we do to firm up the market? One is to let the market cycle run it's course. Ultimately prices will decline enough that "experts" who have the ability to influence large numbers of people will send out a "buy" signal which will bring people into the market. That approach will take care of things but will probably take a lot longer than most people wouldl like.

The other is to try to interrupt the normal business cycle. Helping people stay in their homes is an attempt to do that. So far, the results have been minimal. A better approach would be to stimulate demand. Right now, people are hesitant to purchase real estate because they see more risk than return. To stimulate demand, we would have to change that equation by creating an upside to purchasing where people don't currently see one.

How might that be done? The only thing that government can to stimulate demand is through incentives. What might they be? The only thing I can come up with are tax incentives for purchasing real estate. If the tax incentives were great enough, people would see enough upside to purchasing that the risk would be worth it. With sufficient incentives, demand would go up and the excess inventory would soon dry up and prices would find a floor. That is what everyone is says we need.

Monday, October 6, 2008

Will The Government Bailout Help the Real Estate Market?

After all the hoopla of last week, the government passed a record Wall Street bailout package with the hope of easing the credit crisis. Now the question that is being asked is "Will the government bailout help the real estate market?"

From what I know of it, I can't figure out how it will. Much of the talk of the bailout seemed to center on unlocking the credit markets which experts had said were "frozen". That all seems odd, because mortgage financing wasn't frozen. During the entire crisis, there was abundant mortgage money available to qualified buyers. In the current financing climate, a qualified buyer is one who has money for a 10 to 20% downpayment (depending how how they plan to use the property), a good credit profile and can verify both employment and income. Since mortgage money wasn't frozen, I don't see how the bailout can help us there.

Another theme that was voiced was the need to help people who are behind on their mortgages so that they can stay in their homes and avoid foreclosure. I guess the idea there is that with fewer foreclosures on the market the oversupply of housing will be less. In our area, there are foreclosed homes on the market but they represent a very small percentage of the total inventory. There are homes on the market where owners are behind on their mortgages and face foreclosure, but those too are a relatively small percentage of the homes currently for sale. To what extent the bailout will help these people I don't know. But even if it does, it will impact a small percentage of the total inventory.

So when it is all said and done, it's hard to see where the bailout will help firm up the real estate maket in any meaninful way. It looks like we can expect prices to decline further which means we will have more of the problem that led to the bailout in the first place. Does that mean we can look forward to another bailout? Only time will tell.