We are entering into the middle of Summer even though we haven’t had much of a Summer thus far in the Pacific Northwest. We finally are receiving some nice weather and people are taking advantage of that. Sales are slumping a little since the tax credit has been ceased. Although, we are getting reports of increased fraud. You would think that the IRS would require a purchase contract to be submitted, along with the HUD 1, since they instituted the April 30th deadline to be under contract with a seller. Well, they apparently don’t have any policies in place to verify that and buyers are going into contract after the April 30th deadline and still receiving the tax credit. As a tax payer, how does that make you feel? Hopefully they can get that under control soon and start thinking a few steps ahead.
Jobs continued to gain in the month of April according to the Bureau of Labor & Statistics. 290,000 non farm jobs were created with 66,000 of them for the government as temporary jobs for the census continue to gain momentum. Have you had your friendly census worker visit you yet?
Over the last 2.5 years this Great Recession has contributed to approximately 8 Million jobs lost. Last months jobs report is encouraging, but I am not expecting numbers like that to follow month after month. And even if it did it would take about 3 years to get all of those jobs back that we lost. I hate to be a pessimist here. I want this our economy to thrive again and thrive now! I hope I am wrong, but I just don’t see how we can continue to spend the money that we don’t have and sustain any kind of momentum that we are seeing. The bailout of Greece is a prime example of that. The U. S. holds 17% responsibility in the International Monetary Fund and they just decided to bail out Greece for a whopping 1 Trillion Dollars! Greece is a perfect example of entitlement programs coming to a head. The working class can not afford to pay for all of these programs! More taxes means higher costs for good and services or less jobs. Period.
A lot of this “growth” that we are seeing is believed to be due to the seasonal time of year and the notion that many people are out spending more money instead of paying for their mortgage every month. Many of these are people who have jobs and have the money to pay for their bills, but they are strategically missing payments in order to have a little more fun this year. People are frustrated that their equity is gone so they are not seeing the value in making their mortgage payments. This is known as Strategic Defaulting. They miss a couple of months, which can mount out to a chunk of change, every month or so until the bank comes knocking. The borrower then makes a payment to appease their lender and the cycle continues over and over again. This obviously brings up a moral dilemma. What would you do? Studies show that once the value of a person’s home decreases to 75% of their balance owed, that person considers a strategic default. The more popular this idea becomes the more people will consider it. This won’t help out the recovery of our economy, but it is the sign of the times.
So the deadline for the Tax Credit was last Friday. I am curious to see how the market is going to respond. I have talked to some people who feel that there are enough buyers out there that don’t seem to care about the credit. They think this is a wonderful time to buy and won’t be persuaded by $8000 or $6500. I feel that I come from a more logical approach. I would think that if anyone was in the market to buy a house, then they would have gotten off the fence to capitalize on the tax credit. I can understand people waiting if they didn’t find what they were looking for, but that raises another issue. Those people are more than likely hard to please and quite possibly may never find a home that they like. There are so many options out there. And there will continue to be more options. If those buyers decided not to pull the trigger because they felt that prices may fall further than the tax credit value; then I can see that argument. They will also have many options for the next couple years since the defaults continue to stream in and unemployment more than likely won’t change dramatically from our current 10% rate.
So, time always tells what the future holds. I predict that sales will slow up for a month or two while we work through this. The tax credit will not be extended, but I wouldn’t be surprised if the government came up with another carrot to chase. They have spent so much money on this program already and they don’t want it to become another Cash for Clunkers program. We all know how that helped us. I’m afraid that as much as the government tries to help, and I do believe their intentions are good, they need to just allow the market to work itself out. That means that it may hurt even worse for a while, but we can’t continue to throw money that we don’t have to fix a problem. We are only prolonging the inevitable each dollar we waste. What do you think?
Well, things seem to be heating up once again with first time home buyers as well as move up buyers in our area. People are trying their hardest to get contracts signed around by April 30th to receive the tax credit. The homes that are selling are around $225,000 and below. The good ones are selling rather quickly, which is a great sign for move up buyers that have prepared well. If they can take advantage of this little “sellers market” in their market segment and then take advantage of the “buyer’s market” in their move up market segment, then I see that as a huge success. Values have held steady for those properties that have been a target of the first time home buyers. Prices have not increased, however; they have mainly held firm. It will be interesting to see what the market will do once May rolls around. Once again, if the government doesn’t concentrate on creating opportunities for private sector jobs, then we are in for a long haul. Of course, it will still take a long time for the economy to work through the 8 Million jobs lost over the last two years. The government is sure not to extend this tax credit, but they may just have to come up with more opportunities out there if our economy does not start to show healthy & sustainable signs of recovery soon.
Today the Bureau of Labor Statistics jobs report came out that announced that we gained 162,000 jobs in the month of March(www.bls.gov). On Wednesday the ADP (Automatic Data Processing) said we lost 23,000 private jobs. So what does all of this mean? First of all, it is good news that the BLS report shows job gain. I want to make it clear that any growth is good for us right now. The bad news in my opinion is that most all of these jobs are government jobs and many of them are temporary. It is estimated that the US Census Bureau will create approximately 800,000 jobs from January to May of this year. That is all wonderful, but May is only a month away. By the way, did you send in your Census yet?
I do believe that the health of our country’s economy, including our housing market, is going to be built on the foundation of a strong PRIVATE work force. Small businesses and corporations are what encourage the American Dream that we have become known for. Government jobs only create more dependence and add to our problems. As you can tell, I am not a fan of big government.
Our housing market has stopped its hemorrhaging, but we continue to seep if you will. The tax credit that expires in 28 days, which will NOT be extended, is holding us steady with properties under $200,000 here in the Willamette Valley. Homes over that price range and especially homes above $300,000 continue to drop in values. Again, everything hinges on our employment rate and the confidence that Americans have in our economy. We will not see home values stop dropping until we get people back to work. Our current unemployment rate is holding at 10.5% here in Oregon. That is better than the 11.6% it was in 2009, but we have a long way to go. I don’t believe we will sustain our problems in the long run with more government jobs.
In the midst of the economic conditions, I do believe now is the best time to buy a home if you are in the market. I do believe that housing rates will continue to rise from here on out, which will cost a buyer more money than the potential drop in home values. If rates go too high, then it will price home buyers out of the market completely, then we will be living in the early 1980’s once again. Only cash buyers were purchasing homes and only a few were selling on contract. Purchase agreements must be inked by April 30th, and homes must close by June 30th to get the $8000 “First Time Home Buyer” tax credit, and the $6500 “Move Up Home Buyer” tax credit.
It is March 30th and the Federal Government has committed to purchasing Mortgage Backed Securities until the end of this month. This ends, or at least appears to end at the moment, a $1.2 Trillion program to keep Mortgage interest rates in check. Of course, we’ve been spoiled with interest rates as low as the high 4’s over the last few years; however expect things to change if the Fed really does stop purchasing these bad packaged loans. We very well could see them stop buying them for a little while, but if interest rates increase very much, then expect them to continue throwing more money at the program. If the market suffers even more because of the lack of a purchaser for these loans, then the money spent for the program in the amount of over $1.2 Trillion could be considered another wasteful attempt to pump life into the market. Sooner or later, though, this liberal government will need to realize that we can not sustain to continue spending money that we don’t have in order to carry the burdens. They need to understand that unemployment is the driving force to getting us out of this funk that we are in, and we are in one of the largest funks in recent history. This could turn out to be worse than the 80’s if they don’t get things figured out very quickly. It doesn’t take a rocket scientist to understand that spending more money than one is making is a recipe for disaster, and raising taxes in a recession is another recipe for disaster. People who have gotten themselves into too much debt and weren’t able to make their payments is one reason why this country is in the financial mess that we are in now; and you tell me that the governments solution is go to deeper into debt with China?! How ridiculously ignorant do you have to be?