Wednesday, October 28, 2009

Quick Bonus Tax Credit Commentary from ChadCAN.com

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Oct 28 2009!
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Tax credit commentary after the announcement this afternoon that the credit will be extended to home owner's who have not purchased for 5 years.  This is commentary I wrote and posted at www.marketwatch.com  I hope it provides some quick perspective you can use when visiting with your clients.
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Tax credit Defense!
 
I agree with some of the comments that this is a temporary fix and may prolong an inevitable...but getting buyers into the marketplace who wouldn't have otherwise been there could be worth much more than $6500 to $8000 each home for the economy.  It is also money going to REAL people...and not "bailing out" anyone directly...though sellers benefit.

Yes: the ridiculous spending and lending of the last several years helped get us here.  It is counter-intuitive to think that massive consumer spending (which leads to inflation) will get us out.  If consumer spending is focused on the real estate market vs. goods and services however: we see longer term stability than if there were a campaign for everyone to purchase more consumables.  Inflation is better kept in check due to this as it is limited to home prices...which stabilize then appreciate with more buyers on the market vs. available inventory.  (Again: maybe temporary.)

TRUTH: People tend to be purchasing more for the right reasons than they have in the last several years.  Example: a house is purchased to be a HOME for the next 5-10 years instead of an investment for the next 2-3 years.  People purchasing need to fully document their income and assets.  We are relying less on computerized underwriting and shifting back to manually underwriting and looking for a reasonable case that a person has the ability to pay.  People put down at least 20% for investment property or second homes.  Bottom line: MORTGAGE BACKED SECURITIES are a BETTER investment than they have been in the past...because the people we lend to are better risks and better quality mortgages make better quality mortgage backed securities. 

This perception of better quality/lower risk helps get some of the money out of the mattress and back into the market.  To have mortgages to securitize: we need to do mortgages.  The more "quality" mortgages replace the "questionable" mortgages through purchase OR refinance: the more stability we add to the housing market and then the economy.  Keeping rates low and encouraging home purchase with incentives like this helps do that.

When more people can get off the FENCE...and purchase a home or move-up to a better home: money is injected into the economy.   It is not just realtors, builders, lenders who benefit.  Think: SELLERS of homes, furniture stores, moving companies, designers, renovation companies, home improvement outlets, home inspectors, financial institutions etc. 
 
I would contend that the money injected into the economy with the purchase of a home is potentially greater than $6500...or even $8000: and again is money going to THE PEOPLE.

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 Chad
Chad Schauers
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