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Senator Isakson on RE: We Need More Gas!
Senator John Isakson (R. Ga.) knows how to sell real estate. For twenty
years he built up Northside Realty outside of Atlanta. His company is
one of the largest independent RE brokerages in the country. With that
much experience he knows full well that when you provide 95% LTV loans
and a tax rebate that allows the buyer to put up net-net zero money
down on a home purchase you can move real estate again. The Senator is
pushing hard to extend the existing first time home buyer program. He
wants to dramatically expand the scope (and cost) of the program as
well. From the Senator’s web page:
“Specifically,
my legislation would increase the maximum amount of the credit from
$8,000 to $15,000 and expand the current tax credit so that it applies
to any buyer of any home, not just first-time buyers. My legislation
also would eliminate the income caps of $75,000 for an individual and
$150,000 for a couple under the current tax credit so that there is no
income limit for eligibility. Finally, the legislation would extend the
tax credit for one year from date of enactment and would still allow
home buyers to claim the credit on their 2009 tax return for purchases
made in 2010.”
This proposal would double the size of the
program and it would change it from ‘first time buyer’ to ‘anyone
goes’. Bloomberg interviewed the Senator. From the article:
Sept. 16 (Bloomberg) -- An
extension of the $8,000 U.S. home buyer tax credit is gaining support
in the Senate as bill sponsor John Isakson said he is rallying
lawmakers to continue a program that helped boost home sales by more than 1 million.
I
hope that this statement is a misquote. Possibly an error by Bloomberg.
But if this is a correct statement, then it is very significant. Some
implications:
-The existing Tax Credit for home buyers is a
product of the American Recovery and Reinvestment Act of 2/17/2009. The
cost of this incentive was estimated to be $3 billion. If the Senator
were correct that the number of home sales attributable to the program
is 1mm, then the cost would already be in excess of $8 billion. That
would imply that this program is already 250% over budget and we still
have until Halloween before it ends.
-Recent data puts annual
sales of exiting homes at +/-5mm and new homes at +/-500k. The rebate
program has been in place for six months; approximately 3mm homes were
sold during that period. The conclusion by the Senator is that
one-third of all homes sold are the result of the subsidy and the cheap
money from FHA. No wonder the Senator wants to keep this ball rolling.
Without it sales would tumble. Not so good for the family business.
-As
a RE pro Senator Isakson know that when you mix high LTV loans with a
no money down borrower you get big defaults. The Senator also knows
that the default rate is what is killing us. Yet he proposes to pour
more gas on the problem. He also knows that when these loans do default
the ultimate cost will be born by the taxpayers.
-Assume a more
realistic scenario: 20% of the 7mm homes to be sold in the year
following implementation of the Senators proposal are a result of the
program. That would be a conservative assumption. This would put the
cost of Senator Isakson’s bill at $21 billion. That does not include
the credit losses that would surely come from this. Call it $30
billion. Whose money is this that the Senator is spending?
The
worst of the economic crisis is behind us. Bernanke says so. We need to
stop the economic interference. The Senator’s proposal will certainly
stimulate home sales while it is in place. All that does is create more
debt, more defaults and more bubbles.
Senator Isakson reports
that he has eleven grandchildren. I am sure that he is a loving and
proud grandfather. He needs to think of the consequences of his
proposed legislation. He is robbing his grandchildren (and everyone
else under twenty-five in America today) of their future.
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While we choke on this recent MoMoney4Nuthin', the CongressCritters today gobbled up the whole Student Loan Program ......costing billions. They finally cut out those pesky intermediaries called " private banking institutions ".
This should work as well as FHA methinx.
What's another $30 billion compared to a $1800 billion and rising deficit, $1000 billion plus for health care, $700 billion in TARP, and implied Medicare & SS deficits running over $10000 billion?
For f**ks sake, let's take $100 billion and genetically engineer Smurfs and build them an undersea kindgom at the bottom of the Atlantic. That'll actually turn a profit from all the Japanese, French and Chinese tourists.
Been sitting on sideline for 3 years now waiting for prices to correct, everytime prices started to correct the gov found some way to keep them proped up, starting to see cracks again, almost all sales were FHA/8K gift, and 300k and under, the inventoy of McMansions is just growing by the day, most are still sitting on ubsurd prices or lowering them from 560k to 540k, like that will make a difference, a lot of them are empty and they are atempting to rent them for $2500+, some are even asking 4k..No Takers..Toured one house poeple paid 525K and have a 250 dollar HOA fee, trying to unload it for 400k, no takers...Avg Income in the area is like 50k, none of this crap is going to move and get this there building more...All that said I may just cave and buy a cheaper 3-2 ranch, and call it even, it seems the gov will continue to increase the housing subsidies untill the dollar collapses, at which point none of this will mater....Anyone believe we have'nt pass the point on no return as far as the dollar is concerned?
This just in from Wells Fargo/Wachovia. Under the GreenShootsSpeak headline of "Housing Starts Rose Solidly in August," implying strength of some sort (where do you learn to speak like that?), the truth is in the small print, apropos of what I said we can expect to hear any minute:
"Single-family starts fell 3.0 percent in August, which may indicate that the lift from the $8,000 tax credit for first-time buyers is waning. Buyers must close on purchases by November 30. Single-family starts had risen for five straight months."
The rise in the overall rate was attributable to notoriously volatile multifamily starts (up 25+%, but from heavily depressed levels - these account for maybe 25-30% of the total starts).
True Headline: "Unexpectedly Vigororous One Off In Multifamily Starts Mask Dismal Single Family Homes Starts in August, As Expiration of $8000 First Time Homebuyer Tax Credit Approaches."
Give it to me the way it is, not the way you spin it.
NZ, your commentary is a must read today as always. Thanks.
That Senator from Georgia promoting the expanded housing gift with no means testing or conditions voted AGAINST the "Cash for Clunkers" program.
that's because he did not own any car dealerships....
on the other hand, if we are passing out free
money why should we discriminate against
rich people?
I want to watch it all burn.
I want to make terra preta from the ashes.
I live in GA and I promise I will never vote for Johnny again after he pulls this shit. This is nothing but theft of taxpayer money to artificially prop up home prices higher than they should be. He just lost my vote, my wides vote, and I'm going to trash him to everyone I know.
Isakson does big represent the people of GA shen he proposes pissing away our money like this. He's just a whore for special interest groups.
I live in GA and I promise I will never vote for Johnny again after he pulls this shit. This is nothing but theft of taxpayer money to artificially prop up home prices higher than they should be. He just lost my vote, my wides vote, and I'm going to trash him to everyone I know.
Isakson does big represent the people of GA shen he proposes pissing away our money like this. He's just a whore for special interest groups.
Isakson is a F**king weasel bought and sold by the RE industry. and I can tell you first hand he doesn't give a crap about your opinions. This is no longer a Republican/Democratic thing - as soon as everyone figures this out the better. Our government is bought lock, stock and barrel.
amen
We call him "I-suck-son" in my circles, and he has gotten an earful from us (in person) in the past.
I don't think he got the message. Don't make us break out the tar and feathers, Johnny-boy.
Check out Fannie's performance numbers for "credit enhanced" (read: high LTV) loans, over 10% are seriously delinquent. Now check out the FHA numbers: 13%+ delinquencies according to numbers compiled by Denninger (http://market-ticker.denninger.net/archives/2009/09/14.html), I don't count 1 month down to be serious.
Those numbers will surely grow.
Forget about the economic aspects. At what point is it immoral to put cohorts of borrowers in homes where we know a certain percentage will default? 10%? 15%? At some point, when we know from historical performance that a certain percentage of loans will default on an expected basis, we aren't doing anyone a favor.
At a minimum, we should require that the borrower put down 2X the tax break. If we want to go further in the hole and give away $15K per home buyer, at least require they put down $30K.
Allowing them to use the $15K as their downpayment is not only stupid economically, but borderline immoral.
And this proposal comes from the "fiscally responsible" Republican Party? This is hilarious. How about a $50,000 homebuyer's credit? And make it available to anyone whether they buy a home or not?
That's brilliant.
The Republican party is an embarassment. The Dems are too, but at least the Dems are honest and stand for big government.
indeed....issakson is senator from my state
and he will get an ear full....and it won't be
language he can relate to his grandchildren...
As somewhat of a real estate insider, I can report that the first time homebuyer tax credit was responsible for almost all of the sales in new homes, and gave new hope to otherwise doomed homebuilders. Without it, sales of new homes would have been virtually at a standstill. But understand for that large investment of forgone taxes, it barely moved the meter on homes sales. And it's done for the year for new homes (too late to start them) and thus we'll start seeing the renewed downward slide in sales, another dose of Roundup on those green shoots. The smaller banks breathed a monetary sigh of relief as some of the inventory moved and lessened their losses on the A&D loans (which are all underwater if marked to market).
I can't see Congress going for this - it's not a union thing and the homebuilders do not have a heavy hitting lobby - not enough bucks to throw around outside of the banking business.
One way or the other, the real estate industry has no right to exist, and the fact that it's now dependent on handouts just may show it's a bloated beast.
Creative destruction in order?
I have a feeling I know the answer, but we have stocks like Tol at Sept 2007 levels. How do sales compare to that time, and how have overall profit margins changed?
You will find gross sales down 30% or more, profit margins probably not all that different, and the continuing drumbeat of writeoffs relating to land in inventory and losses on joint venture commitments. Waiting for Toll to somehow acknowledge its principal product, the McMansion, is as dead as the dinosaurs. Note Bob Toll a heavy and continuous inside seller "but that's because he has a divestiture program in place, so move along nothing to see here." Yeah, riiiiight.