Trust me when I say that I’m pissed off that it looks like those of us who chose to live within our means are going to end up losing out but I’ve been trying to think of it this way:
Why do most people choose to buy versus rent. Realistically you could go out and rent the house of your dreams so it’s not about getting out of a crappy apartment or wanting to paint one of the walls red instead of white. Buying a home is making an investment that you hope will one day pay out after you’ve spent several years paying down some of the principle on the home as well as possibly making capital improvements to the house - and then of course we all hope the house appreciates some since when we bought it. That means that when we go to sell we not only walk away with our downpayment but also with what would hopefully be a healthy chunk of extra cash which, if we then turn it around into another house, we don’t have to pay capital gains taxes on.
Anyone who has their payments lowered to 31% of their annual salary is not having their principle lowered, just their payments. That means that they are essentially just “renting” from the bank because when the time comes to sell they aren’t going to see any significant increase in the cash they put into the home.
However, what it would mean for those of us living next door to this guy is that his house doesn’t go into forclosure which means it won’t affect my home value. That’s the upside I see to us.
Couple of other thoughts based on the CNN article:
- I assume (though don’t know for sure) that everyone would still have to pay taxes on the appraised value of their home - that helps keep the city, state, and federal coffers full which is important given how much unemployment money is now going out the door. Far better than just having people walk away from the homes and pay no taxes at all.
- The article says that people can refinance but what about people who’s homes will be appraised for less then they bought it - are they going to be expected to cover the shortfall?
- Not an economics major but I’m assuming that the idea is that this will somehow “trickle” back through the financial industry and prevent financial institutions who are currently holding these shacky mortgages from collapsing under them.
Like I said in the beginning, I’m really pissed at all involved here - the homeowners, the mortgage brokers, the financial institutions - who saw the past 5+ years as a way to make a quick buck regardless of how irresponsible they’re being. But at some point we need to take some steps to plug up this situation so that, truthfully, when I go to sell my house or you go to sell yours we can see the investment on it we were hoping.
The whole concept on maintaining property values and “keeping people in their homes” is all about trying to hold together a non-sustainable system. A couple of points I see.
They talk about people losing their homes, like they will wander the streets as homeless, this is all fearmongering.
You say it’s like them renting from the bank. Okay let the bank foreclose and then they can actually really rent from the bank or I will rent to them, once I buy their foreclosed home at a good price.
There is no compelling reason to keep home prices high, it does not benefit anyone but people underwater. Okay, the small percentage of people who may not have been underwater and were responsible and need to move in the next 2-3 years may be impacted, but why punish 80% of the population to help the 10% morons and the 10% unlucky who need to move. The only real beneficiary is overspending local and state governments who will not have to lose tax revenue if values drop and they have to reassess and the morons who bought the houses they could not afford.
The home builders don’t want foreclosures because they want to build more homes and don’t want a bunch of homes for sale to compete with their overpriced new construction. The whole problem to begin with was building too many Mcmansions no one could really afford. Homebuilding is going to have to cut way back and unfortunately many jobs will be lost, but there is only a need for so many homes and we have a huge surplus under any circumstances. Propping up prices to keep irresponsible people in their homes is not going to magically create out of thin air a bunch of qualified buyers to purchase the new homes the KB and Toll brothers want to start building again “to get the economy going”.
The automakers are in the same conundrum as the builders in a sense. The US automakers are dependent on people buying new vehicles every 3-4 or getting new leases. At some point for both homes and cars it is unsustainable to continually trade up. I am sensibly driving a used Honda for the past 8 years. How unpatriotic of me not to buy a new American car every 4 years to keep the UAW employed. I live in a pretty modest duplex and I do minor home improvements myself. In the not very long run many automaking jobs and construction jobs will be lost forever. All this stimulus is delaying the inevitable, that it is an unstainable system that was nice will it lasted. It is more pleasant to delude ourselves than face the facts, kind of like what we are doing with Global Warming.
