The Best of Times...The Worst of Times? Part 2
HOUSING - This has been identified as the Boogey Man that caused the slow down in our economy, ground zero as it were. Actually it was easy credit and speculators who were attracted to the “liquidity” of housing, an investment that is rarely liquid. This created a spike in demand that accelerated housing appreciation. In their infinite wisdom, the financial markets packaged good paper with poor paper, sold it as an investment vehicle and packaged and repackaged these loans like a regifter at Christmas. Then they all got on T.V and proclaimed a bubble. This prediction struck fear in the hearts of anyone considering the purchase of a home and everyone ran like their hair was on fire. Demand dried up and builders who were responding to the market were left finishing construction of unsold houses which flooded the market. The intended buyers were unable to take delivery of their new home as their old home sat unsold and we were off and running. In a normal market houses are sold within 60 to 90 days which would absorb any potential foreclosures before they became a toxic asset. Our economy is based on supply and demand, when you dry up the demand through dire predictions it doesn’t matter what the supply is, one is too many. We shot ourselves in the foot.
HOUSING IS THE ROOT CAUSE - If you stimulate the sale of housing at the grass roots level rather than propping up banks to encourage them to lend, then money would flow to the banks through the consumer rather than Bernanke. A housing tax rebate similar to the $15,000 credit that died prior to the recent approval of the latest stimulus package would have been the ticket. Instead we are giving first time home buyers an $8,000 tax incentive. Aren’t these the buyers that are most challenged getting loans during the current credit tightening? Let’s propose giving iPods to the deaf or free cars to the blind. It may no longer be the first time home buyer that stimulates a chain reaction of everyone moving up in house. I believe this time the rebound in housing will be fueled by people downsizing and the first time buyer will remain in rental housing. By creating a demand for rental housing you are in fact stimulating construction. Rent is like the old Zero down loans of recent memory. Who cares what we build, just build something. People with no down payment do not need to be buying a house. By increasing rental demand perhaps the unsold inventory of condominiums and townhouses will be converted to rentals, problem solved. By giving everyone a tax credit the oversupply of homes will be eaten up during the spring and summer buying season that is upon us.
THE AUTO INDUSTRY - Very simple, eventually everyone’s car will wear out...next!