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.”

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.

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

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.

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

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.

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.

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.

RE: DrShort @ 45 …ick.

I was thinking more like “Ka-Ching!”

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

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.

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.

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).

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?

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.

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

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).

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.

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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.

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.

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

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

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.

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.

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.

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.

Other likely winners include deejayoh and fan favorite PeoplenamedHarleyLeverareLosers.

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. ;^)

“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.)

“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.

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…

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.,,

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!

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.

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

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.

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

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

I’m starting to get good at this.

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.