Real Estate Industry: Looking For Another Bailout

Fresh off our $700 billion bailout of the financial industry, the National Association of Realtors [NAR] and the National Association of Home Builders [NAHB] are calling for another stimulus package, this time aimed at the housing industry, according to Inman News. One of NAR's suggestions is for the government to eliminate the need for homeowners to pay back the $7,500 first-time homebuyer loan that was part of one of the previous bailout packages; in addition, they would like to see the $7,500 offered to everyone, rather than just people who haven’t owned a home in the last three years.

"Housing has always lifted the economy out of downturns, and it is imperative to get the housing market moving forward as quickly as possible," NAR President Richard F. Gaylord said in a press statement, according to Inman News. Translation: We need to inflate the price of real estate so people start buying property again and our members don’t go broke.

What do you expect the president of NAR to say? Of course he is going to do whatever it takes to ensure the livelihood of his members; after all, without them, he is out of a job. Take what anyone at NAR, or NAHB for that matter, says with a grain of salt. Just for fun, though, let’s talk about his proposal.

The first questions that come to my mind here are, what are the benefits, and how much is it going to cost? I suppose the ultimate benefit here is that somehow lighting a fire under the real estate market jumpstarts the economy and everything is back to roses and sunshine.

Reality, though, is that even if this measure were to invigorate the market, we will simply be repeating the same mistakes that got us into this whole mess in the first place. This time, instead of keeping rates too low and allowing the market to take off, we will be one-upping ourselves by actually paying people to buy houses.

So what would stop this from blowing up in our faces again in the future? I think you can see the point I’m trying to make here, so let’s move on to the cost.

NAR, of course, didn’t give any mention of how much this wonderful plan might cost, but let’s hypothesize here. Say 8 million homes are purchased across the country next year; with each buyer getting $7,500, that would end up costing taxpayers $60 billion. Sure, that seems like chump change compared to the $700 billion bailout plan, but let’s not lose sight of the fact that $60 billion is a lot of money.

And considering that we would have to borrow this money to pay it out, the real cost is only going to increase from there. No matter how you spin it, I feel that we would be absolutely crazy to pass something like this, but I’ve felt that way before as well and the government didn’t listen.

Comments

[SAD:]

I am all for a quick turn around in Housing and if our Government wants to help out, great! However, that 60b number you reference could lowered considerably if you controlled the frivolous spending and compensation of these "Big Builders."

By way of example, the top 3 execs in one "Big Builder" last year pocketed over 12m in compensation dollars on a year they lost over 2.5 billion. In 2009, on a business that will do maybe 14,000 homes that is about 900 bucks a home in incentive dollars.

In addition, they all praise how much cash they now have nested on the balance sheet "waiting for a better day." How about requiring them to use some of their own cash to fix the problem?

Conclusion, use your own cash to fix the problems and get your SG&A in line!

2008 Oct 19 08:04 AM

[John Preston:]

"The first questions that come to my mind here are, what are the benefits"

Robert Shiller, in prepared remarks for the Academic Consultants’ Meeting with the Board of Governors of the Federal Reserve System, January 30, 2004

"I conclude that although the “wealth effect” of national home prices on national consumption may be hard to prove, there is a serious risk of the consequences of home price declines at least regionally. The regional housing bubbles that appear to be going on in the United States ought to be concerns of the Federal Reserve Board."

2008 Oct 19 11:09 AM

[sickofthehype:]

Housing starts lowest since 1945 - this should help out tremendously.

2008 Oct 19 12:36 PM

[Ranboz:]

The average price per house, on a national level, is directly related to the DOLLARS FOR HOUSE PURCHASES divided by THE SUPPLY OF HOUSES. Housing prices have fallen because both have been going the wrong direction. To stop the fall, the "dollars for purchases" would need to increase significantly AND the "supply of houses" would need to decrease. It appears that home builders have nearly stopped building - so the increase in supply has nearly halted. However, to stop the decline of "dollars for purchases", may require the federal reserve to print dollars at an unprecedented rate for infusion into lending institutions. The long term effects of such an action may be highly undesirable. It may be best over the long run to allow the market to adjust down, without interference, as it had been allowed to adjust up prior to the bursting of the bubble. However, confidence is king in markets and this must also me taken into consideration. It is quite a balancing act.

2008 Oct 19 01:46 PM

[Granville:]

Crazy? No! What a great idea!
I am going to write to Barney Frank and Chris Dodd, and ask them to please stop counting their political contributions long enough to pass a massive bailout for their good friends.
Barney Frank, while in the midst of this credit crisis, has already killed legislation that would stop 'seller-financed down payment', which is a realtor/builder ponzi-scheme strategy. So even a credit crisis can't keep him from toxic legislation.
But why stop at eliminating the first-time-buyer tax credit/loan? It is a lot of messy paperwork, and when that doesn't work, Barney and Chris will have to fashion another bailout. Rather, Frank and Dodd should just pass a law that it is every American's right to own a big home with Cathedral ceilings, and that the American taxpayer should be fleeced to subsidize this. Home buyers would only have to fill out a short form with the address of the new home and a check box: I Want This House!
How do we pay for this? Taxpayers can just remit their entire gross income, and subsist on the food stamps. The Obama presidency will be glad to have everyone on the dole and dependent on government.
See how easy this is?

2008 Oct 19 02:11 PM

[Rhett:]

Sooner or later, housing prices, like water, will find their own level. That level is what people can afford to pay, not what the government can borrow and lend to them to make a down payment. Unfortunately, it appears that we are still some distance away from housing prices finding their level.

2008 Oct 19 02:27 PM

[The Hammer:]

Nothing should be done, but to allow house prices to correct down to affordable levels. Houysing have become a huge burden and are putting massive pressure on families. It is eating up a huge chuink of one's paycheck. House prices would be more fair at about 3.5 tiomes meidan area incomes.

The NAR realtors builders appraisors and mtg brokers need to suffer for their reckless greedy pumping over the bubble period.

2008 Oct 19 06:50 PM

[dvic:]

The US population is currently 306 milion and growing by 1.4 million per year and forecast to grow to 439 million by 2050 and 575 million by 2100. I don't know about you but I would rather eat beans and rice than to have this much growth. It's bad for our environment and quality of life in general. I would far prefer to stablize our populationIt and transition away from this massive real estate development (destruction) economy which depends on a constant flow of immigrants to this country and work towards a more sustainable, less destructive and in the end far more desireable way of life. We don't want to end up like Europe with only 15% of undisturbed land area or a population of over a billion like China or India. You get that way one year at a time, 1.4+ million per year each and every year. The industry lobbyists will be pushing hard in that direction, count on it.

Feb 15 02:07 AM