Monday, May 18, 2009

To Fix the Problem of People Buying Homes They Can't Afford...

...we are going to help people buy homes that they think they will be able to afford in the future. The FHA has decided that they may allow home-buyers to get an advance on their $8,000 home-buyer's tax credit to buy their home.

As a recent home-buyer, I love the idea that more people will be buying homes. But the economics of this are off. This new initiative will bring back and artificial bump to prices that will be doomed to again recede. The $8K is to encourage people to buy homes. The reason every renter isn't running out to buy a home is because they need to save up for the down-payment in order to qualify for a mortgage. If they no longer need to save as much for a down-payment, a huge inhibitor is removed and the market would be flooded, especially now that sellers are paying up to 3% for closing costs.

We cannot let our government artificially buoy market prices. No matter how much fun it may be to blame the "greed" of Wall Street, there is a big thumb-print of Uncle Sam on the scales that ended up enabling unfit buyers for home-ownership. I am not suggesting that all those that would take advantage of this program are unfit, but I will say that after just over 1 year home-ownership, the unexpected costs that come along with owning your own home require that you have savings and A LOT of it. We can't have people buying homes on the government's dime.

Thanks for the link, Tim. I wish I could have found a more positive light for the program.

2 comments:

  1. Sorry, can't help you. I completely agree in this case.

    The longer we keep pushing off the inevitable, the greater the acceleration of the big bust gathering speed to hit the wall.

    Why inevitable? Because the focus has been on one-time bandaids rather than cash flow. When someone signs up for a cash flow out, better be darned sure there's a greater cash flow in to handle for the coming decades. But no one has done that.

    Me? I'm praying for $4/gallon gas. Heck, let's see what $10 does.

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  2. That's interesting. Why are you hoping for higher gas prices? I'd be worried that we'd have the same inflation from last summer, which seemed to turn on a treadmill that not everyone could keep up with. I've been happy with the constricting of credit and think we need to let that run its course and readjust consumer spending in this country.

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