Today (October 28, 2009), the US Commerce Department reported that new home sales dropped by 15,000 from 417,000 in August 2009 to 402,000 in September 2009.

Many brain-dead “news” agencies, are attributing this drop the pending “expiration of the First Time Buyer Tax Credit.” This is THE MOST ridiculous assertion any thinking human being can make if they expect to maintain any level of credibility.

FACT:
The First Time Buyer Tax Credit does not expire until NOVEMBER 30, 2009.

FACT:
Virtually everyone who is at or above the age of maturity (18 years-old), is aware of the fact that new home sales typically go to contract at least several weeks prior to the closing of the sale, which is the transfer of ownership from the builder to the buyer. This time period from the date of contract to the date of closing can be a short as 2-3 weeks, or as long a several months. But, it is for sure, that the actual contract date occurs, THE DATE THAT THE BUYER DECIDES TO BUY, is, at the very least, a few weeks before closing.

WHAT DOES THIS MEAN?
It means, that those who closed homes in September most likely DECIDED TO BUY no later than the end of August; some 3 FULL MONTHS PRIOR to the expiration of the First Time Buyer Tax Credit.

FACT:
When home buyers suspect that the cost of homes is going to rise (e.g. increasing prices, increasing interest rates, or the ELIMINATION OF A SUBSTANTIAL TAX CREDIT), the response is an INCREASE in buying activity, NOT A DECREASE in buying activity. This is because people wanting to buy do not want to pay more than they have to. It’s basic common sense, as well as historical FACT.

SO WHY WAS THERE A DECLINE IN THE NUMBER OF HOMES SOLD IN SEPTEMBER?

Well, here are couple of reasons not mentioned by the media:

1. 9.8% national unemployment rate, and double-digit unemployment rates in 15 of the contiguous 48 states (Source: http://www.bls.gov/lau/) Ranging from 10.1% in Georgia, to 15.3% in Michigan. And in the most housing-sensitive states, unemployment is sky-high, with California at 12.1%, Florida at 11.0% and Nevada at 13.3%.

2. The lack of buyer confidence in the future of the general economy. In other words, most people aren’t willing to risk their savings and take on major debt when they have serious doubts about whether or not they’ll have sufficient income to support that debt. Bluntly, they’re not confident they’ll have a job.

AND, what about the FACT, that there really aren’t a whole lot of “First Time” buyers to begin with. While I don’t have the exact statistic, my experience tells me, so-called “First-Time” buyers typically make up no more than 10%-15% of the market under “normal” conditions. Consequently, their lack of employment longevity and stability, combined with lower earnings and few prospects for increasing their income in their foreseeable future all combine to substantially reduce this already low percentage of the buyer population.

WHAT’S THE ANSWER?

Convince those presently running the federal government to IMMEDIATELY:

1. Stop the incredible and unnecessary federal spending and debt-creation;

2. Stop taking over and nationalizing more and more private industry, which will assist in reducing federal spending;

3. Stop printing worthless paper dollars and watering down its purchasing power which will certainly result in an inflationary explosion;

4. Reduce and/or eliminate federally mandated spending requirements of the states so they (the states) can reduce their exploding income tax burden on their citizens;

5. Reduce federal income tax rates on those who pay the overwhelming majority of the income taxes collected; and

6. Provide an income tax credit for at least 12 months, to anyone who wishes to buy any type of real estate improvement, whether a house, a retail building, an office building, etc., without any pre-condition; and let them buy as many as they can afford.

The first 5 items will likely result in business expansion requiring the retention of existing employees and the hiring of new employees. This will start to restore much needed confidence in both the business community and in the general population which will encourage additional risk. It will also reduce unemployment rates, which will both begin to restore confidence and reduce the current soaring levels of foreclosure.

In turn, number 6 will serve to reduce the present level of over-supply of inventory in all sectors of the real estate market. It will also start to create competition for properties which will, at first, result in the stabilization of prices, then will start to drive prices upward.

The increase in demand for real estate and increasing prices will result in a reduction in the amount of foreclosures, which will, in turn, relieve banks of their presently high reserve requirements which will allow that amount of money to be placed back into circulation through the creation of more loans at lower costs (interest rates).

In the end, the federal government will collect more money from income taxes, because more people are working and making profits; a rerun of the effects of the Reagan tax rate cuts.

If steps like these are not implemented IMMEDIATELY, we can all expect a combination of substantially higher unemployment, more and more foreclosures, and substantially lower real estate values.

In short, I don’t think it is overstated to say, if steps like these are not implemented immediately, we are likely to suffer a severe and protracted economic depression.

I would like to hear any thoughts you may have on this subject.

This entry was posted on Wednesday, October 28th, 2009 at 11:56 am and is filed under The Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.