Housing Industry's Struggles
Sure.yepthats rightno problem... Sadly, these have been the responses coming from mortgage companies and banks over the past years when clients were asking, Can I get a loan to purchase a half a million dollar; even though, most of these people did not have the yearly income to backup such a purchase. In addition, borrowers were giving hardly anything for the down payment and, in some cases, nothing. Now, this is not to say that the people making these purchases are not to blame as well. It is not right to say the banks and mortgage companies are the only ones responsible for this entire situation. People were trying to live above their means and being reckless with their financials. Borrowers were increasing their fixed costs (eg. higher mortgage) in the future, while, in the present, only paying the interest on the loan. So when the real estate market values began to decline and these people were not selling or flipping properties like they had expected, this irresponsible behavior evolved into the current financial crisis and abundance of foreclosures. Most financial analysts saw this irresponsible behavior going on but just ignored it and never thought that it would turn in to what is happening today. In contrast, some business analysts were trying to predict what this careless behavior would lead to down the road. In a 2005 Wall Street Journal article, James Hagerty writes, Conditions have been almost ideal for the housing industry in recent yearsThe debate now is whether the boom will lead to a soft landing, with gentler price increases, or to a long, painful bust, in which prices fall considerably in some places before buyers regain confidence. He goes on to discuss affordability loans and how lenders were allowing borrowers to not present the proper documentation for a loan. Now the question is what needs to be done to stabilize the housing market and increase investors confidence in the market. The government in 2008 began a tax credit program for first time home owners or people that did not own a house for at least three consecutive years. Did this improve the housing market? What are the tax credit programs results so far? In a WSJ article titled First Time Fraudsters: A Tax Credit So Silly Even a Four-year-old Can Exploit It, the writer discusses some of the results and impacts of the housing tax credit and the tax administrations findings already as of late 2009: At least 19,000 filers had not purchased a home when applying for the tax credit 74,000 filers were not first time home owners 500 people under the age of 18 filed for the credit 53 IRS employees filing illegally for the credit As of October 2009, cost of credit $1 billion a month and $15 billion total With all of this fraudulent activity, it is hard to determine the overall results of the tax credit. The real estate market, though, cannot argue that it has seen increase in sales since the credit was deployed, but like the WSJ article goes on to say, Many of those sales would have happened anyway and have merely been stolen from the future. During the past week, the White House announced that they want to pursue a tax on the largest financial institutions in an effort to reclaim some of the bailout money each of them were given. This tax increase will only tighten up lending and decrease the amount investors are able to put back into the housing industry. Increased taxes are not a solution to dig the country out of this financial crisis. Lastly, the government wants to help these people that tried to live above their means and cushion their struggles. This is nonsense when you have people that played by the rules and paid their mortgages on time and in full. The bailouts have got to stop because they are not improving the economic conditions, and the U.S. just keeps increasing their debt by the minute. The government needs to turn to the countrys foundation which is small businesses and give tax breaks to these business owners. Small businesses are the key and until the current White House realizes this, it may be a rocky road to recovery. Sources: http://www.realestatejournal.com/buysell/markettrends/20051122-hagerty.html http://online.wsj.com/article/SB10001424052748703574604574501253942115922.html
Housing Industry's Struggles
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