Fritz Pfister

The week before Christmas the Capital Area Association of Realtors will announce to you that the number of home sales in November increased dramatically over November of 2008. This will mark the sixth consecutive month over month increase in the number of home sales following a dismal first five months of 2009. Then in January CAAR will announce 2009 bested the number of homes sold in 2008.

Why were home sales down the first five months of the year, and why have home sales jumped so far ahead this November over last November? Because the nation was stricken with fear following the financial meltdown of 2008 when the subprime mortgage market was realized as the fraud it was. The zealous home loan lending industry with the blessings of the government lent millions of people who had no business buying a home money. We all paid the price when the mortgage securities banks held were deemed toxic.

Then the biggest turkey of all was foisted upon the American people in the form of a $700 billion dollar TARP bill which gave the Secretary of Treasury power never held before in our history. How was the money used meant to buy toxic assets? Bailouts of insurance giant AIG, GM, Chrysler, and billions merely lent to banks and Wall Street. No toxic assets were purchased.

What was the goal of giving these too big to fail banks billions of your tax dollars? To get credit moving so businesses and consumers could continue borrowing and spending. Yet still today we hear that banks still aren’t lending as they should be. Why? Because in the TARP bill for the first time in history the government began paying interest to banks on the reserves they hold. Why loan out the money when you have guaranteed income from the government for simply holding on to the money?

Yes home sales will be up significantly over last November and for three reasons. First last November was the first month following the meltdown causing home sales to plummet. Consumers were rightly scared and weren’t rushing out to buy a house when they just had their retirement accounts nearly wiped out, and their financial future was uncertain.

The second reason is that the Federal Reserve in response to the meltdown created a program to purchase $1.3 trillion dollars in U.S. bonds below market rates to keep interest rates low on consumer loans including mortgages. As a result mortgage interest rates ran at 40 to 50 year lows. The cost of money was so cheap that anyone who was thinking about buying a home rushed to take advantage to get a new home with an incredibly low house payment.

The third reason is because the government passed a $787 billion Stimulus plan that we were told would create jobs, keep the unemployment rate below 8%, and jump start the economy. The Stimulus plan has proven to be one plump turkey as it failed to create jobs, and unemployment jumped to 10.5%. The silver lining that was included in the Stimulus was a tax credit of up to $8,000 to first time home buyers.

The first time buyer tax credit required that the purchase be completed by November 30 or you wouldn’t get the money. This caused a crush of activity as the deadline neared. But before the government stepped in and extended the tax credit, we had a brief period that would return the market to normal demand, not one driven by free money and deadlines, and the number of home listings going under contract fell. New home starts dropped like a rock by 11% to the lowest level since last April while builders waited to see if the tax credit would be extended. The power of a tax credit, and its impact upon the entire housing market was evident.

Not only was the first time buyer credit extended but was expanded to include families that owned a home five of the preceding eight years to qualify for a $6,500 tax credit if they purchase another home. The deadline on both these programs to have a purchase contract in force is April 30. Sound like a long time? In real estate terms it’s but a flash.

If a family wants to buy another home here’s their challenge; first buy another home before selling and take a huge financial gamble, or sell their home, and then buy. Even with the dramatic pick up in home sales only 50.5% of the home listings have sold this year and the ones that sold averaged 108 days on the market to a contract.

What does this mean? If the deadline is April 30 to have your next home under contract, and you don’t want to gamble on owning two homes, January the 12 is 108 days from April 30. That’s when you should have your home listed, if it takes you the average time to sell.

What happens after April 30 is any body’s guess when we return to normal market demand. It will be the first time in 14 months without tax incentives to buy a home. Therefore jobs will be the key to demand, and right now that doesn’t look good according to forecasts.  

The biggest turkey of all is coming, the health care reform bill. Hundreds of billions in new taxes will deliver a jobs killing blow to businesses, and significantly increase health insurance premiums upon families and individuals at a time we need consumers to spend.

Jack Welch former CEO of GE stated recently on Bloomberg that Obama economic policies are ‘insane’. Who can objectively disagree? The solution to improve access to care for the uninsured is to make the economy sicker by throwing more people out of work, exacerbate the foreclosure dilemma, and reduce families disposable incomes. Some solution.

If we are counting on jobs to supply buyers to the housing market with unemployment at 11% in Illinois, at 10.5% nationwide, and rising, why punish the job creators with these new taxes? This will negatively impact demand for homes.

The stuffing that is inside this health bill turkey is the cost. The CBO says the senate bill will cost $849 billion, based upon the data they were provided by Senator Reid. Garbage in, garbage out. Senator Reid is misleading the American people, the CBO calculations are based upon ten years of income, and only 6 to 7 years of expenses, counts on $500 billion in Medicare cuts, and does not include $300 billion in payments to doctors. This is a con game to fool people to pass a bill.

The Heritage Foundation, The CATO Institute, The American Enterprise Institute, and the former director of the CBO estimate the cost closer to $2.5 trillion dollars over the first decade. The senate leadership gave the CBO information to arrive at a desired result, so they could have cover to gain support to pass this turkey of a bill. Plain and simple this fraud will place an anchor on any economic recovery, and add to an already unsustainable deficit.

So Turkey Day is coming. Last year our government gave us the TARP turkey, and this year have given us the Stimulus and Health Care turkeys. Nothing the government is doing is helping the private sector create jobs, with maybe the lone exception of the tax credit for home buyers that will generate sales for a limited time. There will be a price to pay after April 30. But for now all is good. Let’s enjoy the moment while we can.

The opinions expressed here are solely those of Fritz Pfister, or identified sources,  and not those of RE/MAX Professionals Springfield, or RE/MAX International.

The government granted a reprieve to first time home buyers by extending the up to $8,000 tax credit until April 30, 2010. This will lead to more home sales, and the increased demand will support home prices.
The tax credit was expanded to include families that have owned their home five consecutive years within the preceding [...]