NWMLS: Fake Expiration of Wasteful Tax Credit Boosts October Sales

Let’s have a look at October market statistics from the NWMLS. Here’s the NWMLS press release: Tax credit spurs big surge in Western Washington home sales.

Here’s your King County SFH summary, with the arrows to show whether the year-over-year direction of each indicator is positive or negative news for buyers and sellers:

October 2009 Number MOM YOY Buyers Sellers
Active Listings 8,869 -5.2% -19.7%
Closed Sales 1,758 +8.7% +33.3%
SAAS (?) 1.61 -11.4% -27.9%
Pending Sales 2,295 +0.3% +72.9%
Months of Supply 3.86 -5.5% -53.6%
Median Price* $377,500 -1.2% -3.7%

In a great big surprise to absolutely nobody, closed sales bumped up in a seasonally unnatural pattern in October, no doubt due to the belief many buyers had that the $8,000 tax credit would be expiring at the end of November (it is now foolishly being renewed and extended, pushed through Congress on the back of an unrelated extension of unemployment benefits).

At this point it still looks unlikely that closed sales will manage to break through the 2,000 mark this year. In the past, closed sales have fallen an average of 15% from October to November. I suspect that this year we may see sales hold steady or possibly even post a slight increase, but a 14% increase would be surprising, especially with the tax credit now having been extended.

Here’s how the closed sales situation is shaping up compared to previous years:

King County SFH Closed Sales

Thanks to an apparent abundance of eager homebuyers that aren’t very good at math, closed sales made a clear break from the trend seen every other year since 2000, ticking up from September to October. I expect a similar market distortion to appear next month as well.

Feel free to download the updated Seattle Bubble Spreadsheet, and here’s a copy in Excel 2003 format. Click below for the rest of the usual monthly graphs.

Here’s the graph of inventory with each year overlaid on the same chart.

King County SFH Inventory

The tax credit isn’t having much of an effect on inventory, which pretty much followed the usual seasonal pattern.

Here’s the supply/demand YOY graph. In place of the now-unreliable measure of pending sales, the “demand” in the following two charts is now represented by closed sales, which have had a consistent definition throughout the decade.

King County Supply vs Demand % Change YOY

Only 2003 had YOY sales increases in excess of what we saw for October. I’m starting to sense a Cash-for-Clunkers-esque hangover coming this winter…

Here’s the chart of supply and demand raw numbers:

King County Supply vs Demand

Here’s the median home price YOY change graph:

King County SFH YOY Price Change

And lastly, here is the chart comparing King County SFH prices each month for every year back to 1994.

King County SFH Prices

Still floating along around 2005 pricing. July 2005: $375,000. October 2009: $377,500.

Here’s a few news blurbs to hold you over until tomorrow’s reporting roundup.

Seattle Times: King County home sales climb to ’09 high in October
Seattle P-I: Pending home sales spike, MLS report says

In this particular case, “spike” actually means “stayed flat, but last year plummeted.”

King County SFH Pending Sales


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

68 comments:

  1. 1

    You Hit All the Salient Details Tim

    This stimulus welfare to upper midddle class [it clearly fully applied to $150K household incomes and partially to $150K+ incomes] American household incomes, aka, first time home buyer tax credit, is now being extended to all qualified home owners [whatever the Hades that means, I may need to redo my exhaustive IRS analysis again, if the House/Senate pass the extention….LOL].

    Our grandkids’ better have manufacturing jobs in the future to pay for all this nonsense.

    The fun goes on and on….but not to worrry, the rosy economy mounting job losses were only 512,000 for October….we’re stabilizing :-)

  2. 2

    If I had to guess, a lot of these sales are probably purchases by buyers who previously sold to a first time buyer. Previously could mean a simultaneous close. But for that much volume, if that much of it were first time buyers I think you’d see the median have dropped more.

    BTW, from memory about 140 of these sales were short sales–so the banks are finally starting to process them. At that rate they’ll have all the existing short sale pendings closed out in only 8 months! ;-)

  3. 3
    patient says:

    RE: Kary L. Krismer @ 2 – I guess this has been asked before but can you just as easy see how many were reos just to get an idea of the total number of “distressed” sales?

  4. 4
    Matsayswhat says:

    lol @ “fake expiration” :)

    It’ll be interesting to see what December, January and Febuary are like since they’re normally so cool. And what happens in May with the second “expiration” (although who knows, maybe we’ll stick with the pattern and increase it more).

  5. 5

    RE: patient @ 3 – About 180, and about 2x that many pending. That number is up slightly, but the REOs haven’t been the problem closing.

  6. 6

    On the “fake expiration” comment, there might be a slight blip in the numbers because for about the past 2-3 weeks few buyers would want to make an offer if they were concerned about the credit. And they won’t until Obama actually signs it.

  7. 7
    patient says:

    RE: Kary L. Krismer @ 5 – Thanks and understood, I was just curious to the approximate percentage of total closed volume that was “distressed”. Not the majority – yet.

  8. 8
    Sammamish Renter says:

    Good thing is that he median SFH price is down 5% MOM to 490K, close to the 3-year low achieved in Feb 2009.

  9. 9

    The house passed the extension of the tax credit, with Obama set to sign tomorrow.

    http://www.bloomberg.com/apps/news?pid=20601103&sid=ay.bYi_e6hcw

  10. 10
    sead97 says:

    Since the “fake expiration” already pulled forward a bunch of demand, I wonder how much boost the $8K will really provide over the next few months (because people know they have untl May). As a result, during the seasonally slow Winter, it may allow prices to fall regardless, setting more attractive comps for the Spring.

    Now the $6,500 is a new wrinkle. But it’s hard to believe that would encourage anyone who wasn’t already planning to move, since closing and moving costs alone will overshadow that. But let’s say it does drive additional interest in moving. All these people will put their houses on the market increasing supply, but unless there’s a sudden increase in buyers interested in accepting contingent offers, it may not lead to a commensurate increase in qualified buyers.

    So, could the program actually backfire and spur further price declines this winter? Here’s to hoping!

  11. 11
    HappyRenter says:

    Why is homeownership more affordable when prices are higher? (This is what is described in the article posted in the link by Kary at comment #9.)

  12. 12
    David Losh says:

    The fake expiration date was the first thing i thought of when I read the news this morning.

    This shows how gullible the American public is.

  13. 13
    Kevin says:

    RE: Kary L. Krismer @ 9

    Kary, do you know when the new law will come into effect?

    Assuming some one is trade-up buyer or earns 120K a year, when does he need to close to claim the expanded credit? After Obama signs or after 1st Dec?

    Thanks!

  14. 14
    DrShort says:

    What if a trade up buyer purchases a house together with a first time buyer? Can the move up buyer claim $6500 and the first time home buyer claim $8000?

  15. 15
    HappyRenter says:

    By Kevin @ 13:

    RE: Kary L. Krismer @ 9

    Kary, do you know when the new law will come into effect?

    Assuming some one is trade-up buyer or earns 120K a year, when does he need to close to claim the expanded credit? After Obama signs or after 1st Dec?

    Thanks!

    Dec 1st:

    http://blogs.wsj.com/developments/2009/10/29/qa-the-home-buyer-tax-credit-extension/

  16. 16
    patient says:

    To complete the dirty tactics to get poeple to over pay they should also add that the money put aside for the tax credit is limited to a secret amount on a first come first serve basis. So hurry,hurry,hurry now all buyers!!!

  17. 17
    Kevin says:

    RE: HappyRenter @ 15

    Thanks HappyRenter!

    I found this piece of news which quotes White House spokesman that it starts tomorrow when Obama signs it. I guess we will only find out what exactly the bill says in a few days.

    http://www.businessweek.com/the_thread/hotproperty/archives/2009/11/sorry_readers_h.html

  18. 18
    AMS says:

    RE: patient @ 16 – That’s how it was for CFC! Believe me when I say I was in the first billion. I should run the data and see just when all the transactions took place.

    Full database is here:

    http://www.cars.gov/carsreport

    Yes, I checked and my transaction is included and the data is correct, at least for my one deal.

  19. 19
    The Tim says:

    Last night I pre-filled in my spreadsheet so I could get the charts all ready to make it quicker to post them today (then I went and forgot to bring my laptop to work, doh). I was surprised how close most of my guesses were:

      Guess Actual Diff
    SFH Median $380,000 $377,500 -0.7%
    New Listings 2,750 2,744 -0.2%
    Active Listings 9,000 8,869 -1.5%
    Pending Sales 2,000 2,295 +14.8%
    Closed Sales 1,750 1,758 +0.5%

    I’m starting to get good at this.

  20. 20
    DrShort says:

    RE: The Tim @ 19

    So what’s your guess for October 2010? :)

  21. 21
    The Tim says:

    RE: DrShort @ 20 – The “this” that I happen to be getting good at may only be reliably guessing the important stats for the month that just completed :^)

  22. 22
    AMS says:

    RE: The Tim @ 21 – I bet you are not calling for higher prices in October 2010.

    At the same time, I bet you are not calling for $20k government giveaways toward any home purchase.

  23. 23
    Flying Ape says:

    It’s an unpopular opinion but ill say it anyway. Kudos to the government for creating an artificial floor in housing with programs like this. Not necessarily saying that we hit bottom yet but they did inflate the absolute bottom by rekindling the “animal spirits” and avoiding a free fall.

    So you RE speculators out there think that prices can only go up in sync with inflation once we hit bottom? Wrong! The Fed is sitting on $1trillion+ arsenal of MBS’s and they can flood the market and raise mortgage rates if prices get out of control. Any price increase is going to be eaten away by interest payments so it should keep you speculators out. All tax incentives for home ownership should hopefully be removed once housing is in recovery mode so there does seem to be light at the end of the tunnel.

  24. 24
    The Tim says:

    RE: AMS @ 18 – I couldn’t help myself.

    Total sales posted prior to extension: 326,240
    Total sales posted after extension: 349,361

  25. 25
    The Tim says:

    By Flying Ape @ 23:

    All tax incentives for home ownership should hopefully be removed once housing is in recovery mode so there does seem to be light at the end of the tunnel.

    Yeah, right.

    • mortgage interest income tax deduction
    • capital gains tax exemption
    • artificially-low interest rates
    • government-backed loans from Fannie & Freddie
    • $8,000 / $6,500 tax credit

    Maybe that last one will be eliminated. Maybe.

  26. 26
    Tom D. Hare says:

    When the liquidity bubble finally pops, it’s going to create quite a mess. Note how the RIIA and UN direct their minions in Congress and the White House to inflate the bubbles in coordinated fashion. This is so business may continue as usual. The masses are pacified. When it’s time to pull the legs out from under the bubble, no one will have time to react because the masses will believe everything is just fine up to that point. They trust what their television sets tell them.

    Next up after that is UN legislation designed to create regional world government for the US, Canada and Mexico — similar to the EU. Then implementation of cap and trade and other Agenda 21 world government style laws.

    All according to plan… a true piece of art, considering most people reading this are still in denial or even angry at my post. This is the work of geniuses.

    Have a nice day!

  27. 27
    Flying Ape says:

    RE: The Tim @ 25

    Like i said i’m just hoping :)

    Your points 3 and 5 will be eliminated once the Fed starts selling MBS’s but Its up to people like Tim Eyman to see if tax incentives are removed. Who knows what going to happen to Fannie/Freddie. Hopefully they will sell it to the private sector to make up for some losses from all these bailouts. But why bother selling something for pennies on the dollar with government backing.,,

  28. 28
    DrShort says:

    I haven’t seen anything indicating congress extended the temporary high balance conforming loans (those from 417K to 567K). It’ll be interesting to see what happens when those are no longer available.

  29. 29
    AMS says:

    RE: The Tim @ 24 – You’re missing a major red arrow!

    I forget the exact day, but news reports on or about July 26 announce the end of the program. The new reports about the end of the program were definitely in full swing by July 28th (the news was that the program already had enough sales, thus no more were being approved).

    As soon as I heard one of those reports, I was making the final deal. I completed my purchase on July 31, and I was quite worried. I was very lucky to get my car, as it was the last one the dealer had in stock…

  30. 30
    AMS says:

    RE: The Tim @ 24 – Here is one example, from Bloomberg, regarding the money running out. This was published on July 30, less than a week after the July 24 official rules.

    “The trade group for U.S. auto dealers is concerned that the government’s $1 billion program to get older, less fuel-efficient vehicles off the road will run out of money before the retailers can get reimbursements.”

    http://www.bloomberg.com/apps/news?pid=20601103&sid=anhSjXp64Ul8

    Six days and there was concern that the money had run out! Six days.

    Here is a July 29 article about how the EPA re-rated thousands of vehicles:

    Many of the vehicles remained eligible, but the mileage might have gone up or down. The 164 crossed the line one way or the other:

    “A review of fuel-economy data has changed the eligibility of 164 trade-in vehicles in the government’s “cash for clunkers” program.

    The Environmental Protection Agency says 78 vehicles that used to qualify as trade-ins under the program no longer qualify. Eighty-six vehicles that did not qualify now do.”

    http://abcnews.go.com/Business/wireStory?id=8202082

    I was concerned that the EPA might re-rate my trade vehicle.

    My transaction went on without any problem. I had everything in order. That said, there were so many administrative problems–I cannot begin to tell you. In my opinion, the USDOT was clueless about the proper administration of the program, and I think anyone who really knows cars would agree. The EPA suddenly changing the eligibility, or shall I say making some vehicles ineligible, and so on was not the best way to administer a program.

    Now if we could only get governmental officials that understand cars to administer a cars program…

    Ok, I am off my soapbox about CFC now.

  31. 31
    The Tim says:

    RE: AMS @ 30 – Good point. Chart updated above.

  32. 32
    AMS says:

    RE: The Tim @ 31 – I did not notice this:

    “Total sales posted prior to extension: 326,240”

    The program was out of money before the extension!

    (In my opinion there is no way the government could not pay–each individual dealer could bring suit, and what is the answer going to be, “We, the government, don’t have the funds?” “We decided to approve Joe’s claim ahead of Jane’s, so sorry Jane.” From an administrative perspective, a point in time must be chosen, as NHTSA/USDOT eventually did, right down to the minute. The original $1B was supposed to last so long that the point in time could be seen well in advance. Who knew that the program would run though $1B in funds in about 14 days.)

  33. 33
    The Tim says:

    By AMS @ 32:

    Who knew that the program would run though $1B in funds in about 14 days.)

    Yeah, there’s no way anyone could have guessed the stampede that would follow the announcement that the government would be giving away free money. ;^)

  34. 34
    shawn says:

    RE: Kary L. Krismer @ 2 – “At that rate they’ll have all the existing short sale pendings closed out in only 8 months! ;-) ” Kary is predicting!?

  35. 35
    The Tim says:

    Speaking of predicting, I’m feeling pretty good about my guess of 1,750 – 2000 in the May poll Guess the maximum 1-month total closed SFH sales in King Co. for 2009. For the full log of how people voted (those that were logged in anyway), hit this comment from July.

    Other likely winners include deejayoh and fan favorite PeoplenamedHarleyLeverareLosers.

  36. 36
    AMS says:

    RE: The Tim @ 33 – I was part of that stampede, but I didn’t really think there were so many people that drive junk who are also willing to buy new.

    I suspect, but I have no way to prove, that there was a good deal of fraud involved. Non-running car? That’s ok, it’s going to the crusher anyway–no one will really know. If I were an employee of the dealership, in this economy, I would never, never tip the administrator of the program of such activity.

    Gosh, if you could only find your insurance papers, we could process this deal. Right over here we have your favorite desktop publishing software and a laser printer…

    And so on.

  37. 37
    waitingforseattletocool says:

    RE: The Tim @ 33

    The Tim,

    If this is just a “stampede” for “free money” for first time buyers, how do you explain the statistics in some of the more expensive areas (510 – Mercer Island, 520 – West Bellevue)?

    I doubt that first time buyers are in the $900K+ median price range. These areas are up 60% and 136% in closed sales volume and 150% and 100% in pending sales.

    Granted the sales volumes are low in both those areas, but they have been in the 6 to 9 MOS the past few months based on closed sales volume (not pending sales), which is not horrible for expensive areas.

  38. 38

    By DrShort @ 14:

    What if a trade up buyer purchases a house together with a first time buyer? Can the move up buyer claim $6500 and the first time home buyer claim $8000?

    Well, it depends on who really gets the benefit. You could argue that the move up buyer would claim both, because they could arguably sell their starter home for $8,000 more, and then buy a non-starter home where the move-up buyer would be much rarer and thus not affect price much, allowing them to claim the $6,500. Moving from condo to house though, they’d get the benefit on the sale of their condo and then pay more for the starter home, so you could argue it would be a wash.

    More likely though it’s the cash balances that are going to drive things. Take the condo move up. They might put more down knowing they’re going to get $6,500 back later.

  39. 39

    By waitingforseattletocool @ 37:

    RE: The Tim @ 33

    The Tim,

    If this is just a “stampede” for “free money” for first time buyers, how do you explain the statistics in some of the more expensive areas (510 – Mercer Island, 520 – West Bellevue)?

    That’s sort of what I was referring to when I said if it was a lot of first time buyers, the median would drop more. Except for new construction, almost every sale generates another sale, so a first time buyer sale could generate 2-3 more sales in the months ahead.

    As to your comment, the change could be people feeling a bit wealthier if they kept their money in the stock market and saw their accounts go back up, and/or their getting it out at this point and putting it into anything else.

  40. 40
    Greg Perry says:

    I never give up on a goal until the goal gives up on me.

    2000 in November! (Argh, its the last chace!)

    At any rate, I should have 5 of those 2000.

  41. 41
    waitingforseattletocool says:

    RE: Kary L. Krismer @ 39

    In a normal market, yes you would expect first time buyer sales to generate sales up the price chain.

    But in a market where home owner equity is limited or negative, and high amount of distressed sales, you wouldn’t expect sales up the price chain.

    We haven’t had any catastophic financial events in over a year.

  42. 42
    patient says:

    RE: Kary L. Krismer @ 38 – I think DrShort thought about a couple buying a home to move in together, one first time buyer and one move up buyer. I would think they would have to do with the biggest credit but who knows in this era of crazy incentives.

  43. 43
    The Tim says:

    RE: Greg Perry @ 40 – Hah, keep hope alive, Greg. Keep hope alive.

    32. patient » May 5, 2009 at 3:09 pm

    So, we should climb to well above 2000 closings in May and June, I think I need to see that before I believe it.


    33. Greg Perry » May 5, 2009 at 3:15 pm

    RE: patient @ 32

    Yes, if sales continue at their current pace, I believe we’ll easily see 2000+ closing in June.

  44. 44
    scotsman says:

    Ouch! OK, so my “1250 or less” isn’t looking so good, but I really thought the drugs in the Kool-Aid would have worn off by now. Maybe by next spring..

  45. 45
    DrShort says:

    By patient @ 42:

    RE: Kary L. Krismer @ 38 – I think DrShort thought about a couple buying a home to move in together, one first time buyer and one move up buyer. I would think they would have to do with the biggest credit but who knows in this era of crazy incentives.

    Exactly. My fiance and I should close in couple of weeks. We actually had our wedding a couple of weeks ago, but have postponed the legal marriage paperwork until January so she can claim the $8K. She’s a first time buyer and I’m technically a move up buyer (even though I haven’t owned in almost 2 years).

  46. 46
    scotsman says:

    RE: scotsman @ 44

    This can’t go on for ever- I will be right! ;-)

    Can you say “government intervention?”

    http://www.tickerforum.org/cgi-ticker/akcs-www?getimagenr=50723

  47. 47

    RE: The Tim @ 43 – There’s one very distant, rather unrealistic hope for 2000 this year. If the banks release a flood of short sales.

    The thing is though, I would guess that some fairly significant part of that 1100 pending short sale figure is buyers with offers on more than one property. And even ignoring that, with the delay the banks cause it wouldn’t surprise me if only 600 of those closed if the banks said yes to all 1100 of them tomorrow.

  48. 48
    David Losh says:

    There is no reason for Real Estate prices to continue to be this high any longer.

    The sales volume is absolutely ridiculous. Buyers are very stupid to be suckered in by a tax credit of $8K for thirty years worth of debt. The bigger problem is the quality of homes being purchased at $300K and $400K.

    I looked at a house in Ballard today where the new owners have painted, and had the floors refinsihed. They hadn’t touched the kitchen or bathroom. Both kitchen and bath are complete guts, and honestly the whole place is a disaster.

    It makes less sense today for people to buy any old piece of carp for an $8K rebate. How did rebates get to be a driving force in a quarter, to half million dollar debt instrument?

  49. 49
    AMS says:

    RE: David Losh @ 48 – But a house has intrinsic value, you know, plant that garden in your back yard, shelter, and so on.

  50. 50
    AMS says:

    RE: DrShort @ 45 – Maybe you’ll get an extra $6,500 for being a move up buyer?

  51. 51

    RE: DrShort @ 45 – Well obviously a question that should be answered by a tax professional.

    Interesting though. I never had gotten a good answer on the spouse in different situations situation (or any other form of joint ownership), but perhaps it would allow you to qualify for the $6,500 if the $8,000 were somehow prohibited in that situation. I’d be surprised if you could get both, but it really would depend on the wording of the statute.

    I think I would really suggest seeing a tax attorney prior to closing because your situation has not only interesting tax issues, but also interesting community property issues (assuming you live in Washington). It may be your plan isn’t the best plan, especially if $6,500 is the fallback now (not to mention the possibility that you could get both credits).

  52. 52

    By David Losh @ 48:

    The sales volume is absolutely ridiculous. Buyers are very stupid to be suckered in by a tax credit of $8K for thirty years worth of debt.

    You’re assuming the volume is largely tax credit based. It’s also possible it’s just as much due to pent up demand as the tax credit. Prior to the credit people bought houses when they got married (e.g. Dr. Short), had kids, etc. Those things were still happening even with the financial events of the past two years, but people weren’t buying in as large of numbers. Kids are probably a bigger factor than marriage because they aren’t necessarily planned, and because their situation relative to existing housing can get worse as the kids grow up.

  53. 53

    By AMS @ 49:

    RE: David Losh @ 48 – But a house has intrinsic value, you know, plant that garden in your back yard, shelter, and so on.

    To paraphrase George Carlin, a house is a place to put all your stuff, and you spend your days going out to bring more stuff back. When you get too much stuff you need to get a bigger house and move all your stuff to the new house.

  54. 54
    AMS says:

    RE: Kary L. Krismer @ 51 – For what it is worth, and I always recommend professionals that represent you and your interest, here is the IRS’s guidance for the old $7,500 credit:

    http://www.irs.gov/pub/irs-drop/n-09-12.pdf

  55. 55
    AMS says:

    RE: Kary L. Krismer @ 53 – I think it might be better to buy an entire storage business.

  56. 56
    truthtold says:

    RE: DrShort @ 45 …ick.

  57. 57
    DrShort says:

    By truthtold @ 56:

    RE: DrShort @ 45 …ick.

    I was thinking more like “Ka-Ching!”

  58. 58
    David Losh says:

    RE: Kary L. Krismer @ 52

    That’s not the case today. The market heated up by artificial means. Tax credit, or no, buyers saw activity and thought it was an OK time to buy. Real Estate professionals desperate to make ends meet agreed now was a good time to buy. Low interest rates are a suckers bet; it’s all artificial. We saw the activity from the people who had to buy in the Spring, everything since then has been a disaster.

    I’ll say again that it is amazing to me that people look at today’s real estate market place as anything other than grossly over inflated. In 2007 you could say, well maybe things will be different at the end of the decade, but we are there now.

    The only question is if these buyers will walk away from these loans within the next three to five years. My feeling is that they will. I think every one that bought because of this hype will be angry enough not to pay. It would be stupid to pay a $400K mortgage for a $175K property.

  59. 59
    truthtold says:

    double-ick

  60. 60
    AMS says:

    RE: David Losh @ 58 – Ever see someone who waives his or her hands tying to convince the listener?

    It takes a lot of hand waiving to convince people of statements, such as, “Low interest rates are a suckers bet; it’s all artificial.”

    Cheap money is not a suckers bet, but investing borrowed funds poorly is risky.

  61. 61
    David Losh says:

    RE: AMS @ 60

    Really! Amazing argument if there is a value. You are talking about the cost of money compared to the value of the asset.

    0 interest on a Plasma TV for $500 may be cheap money, 0 interest on a Plasma TV for $1000 may be expensive money.

  62. 62

    RE: AMS @ 60

    Just me being anal:
    You wave your hands, but you waive your right to an inspection ( but don’t do that!).

  63. 63
    AMS says:

    RE: Ira Sacharoff @ 62 – You are correct! Thank you.

  64. 64
    AMS says:

    RE: David Losh @ 61 – Note that the percentage rate on the money is not part of the decision–it’s the underlying use of the money.

    If I can borrow money at 0 percent, like banks are able to do, and lend it to you for 5%+, then I am in a positively leveraged position, so as long as you pay the principal back. The best part is that the government gives your money to the banks, for free, and then the banks lend it back to you, and charge.

  65. 65
    One Eyed Man says:

    RE: Ira Sacharoff @ 62

    Huh? Where’s that bottle of shampoo?:-)

  66. 66
    David Losh says:

    RE: AMS @ 64

    Your making another point that has nothing to do with the discussion, but we are far enough along in the thread that it doesn’t matter.

  67. 67
    AMS says:

    RE: David Losh @ 66 – More hand waiving!

    Rah, Rah, Rah!

    But seriously, if you take a purchase price of $1,000 and offer free interest, the net cost based on present value theory with a positive discount rate is less than $1,000. The price might say $1,000, and the sales receipt might say $1,000, but the interest rate is artificially low, so the actual cost is less than $1,000. Alternatively the $1,000 can be divided into a fair interest and principal.

    In accounting there are times when discounted values must be recorded to recognize the true sales price. It’s simply not good enough to suggest that a sale was made for $1,000 when the sale is to be paid in payments over a long period of time.

    From the seller’s perspective: The actual sales revenue is less.
    From the buyer’s perspective: The net cost is less.

    Both will have some level of interest, as there really is no such thing as “free money.”

  68. 68

    […] in King County was at 6,014 homes. Even though last year had backed significantly off the highs, October 2009 inventory was nearly 50% higher at 8,869.The idea of “saving my money until home prices come […]

Leave a Reply

Use your email address to sign up with Gravatar for a custom avatar.
Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Please read the rules before posting a comment.