State Considers Irresponsible Plan to Pre-Distribute $8,000 Tax Credit

According to a post on Aubrey Cohen’s P-I blog Seattle Real Estate News, State may give buyer credit as temporary loan.

First-time home buyers would get their $8,000 tax credit as a state loan at closing, under a measure the state Senate Ways and Means Committee approved Wednesday night.

The federal government is offering the credit to first-time buyers who buy a home through November, but won’t pay the credit until after buyers file this year’s tax return. Under the new budget amendment, which State Treasurer James McIntire wrote, buyers would get the money as a loan at closing, meaning they could use the money for down payments, then pay it back when they got their tax refund.

As you could probably guess, this is being pushed for by the Washington Realtors and Lennox Scott.

As it is currently executed, the $8,000 first-time homebuyer tax credit is not able to influence the price of homes that are purchased, since it is not received until up to a year after the actual home purchase was made.

If the state starts handing out the $8,000 during the purchase, that money is immediately tied into the house. With homes continuing to depreciate (at an increasing rate), by the time the actual credit is received from the IRS and paid back to the state, the equity will likely be gone. $8,000 down the drain.

In contrast, if the homebuyer is forced to practice the lost art of delayed gratification, when they receive their $8,000 government handout in 2010, they will be able to invest it, maybe buy some furniture, or—here’s a crazy idea—save it.

Also, who knows what the homebuyer’s situation will be by the time they actually file their 2009 taxes next year? What if they end up owing some money, and they don’t get the full $8,000 from the IRS in an actual check? If they pre-used that money to buy a bigger/better house than they otherwise would have been able to, it is unlikely they will have saved much in the interim to be able to pay back the state. Or what if the homeowner loses their job? If they had not pre-spent the $8,000, it could have been used to tide them over for a few months on their shiny new mortgage.

All in all, this is a terrible idea. Shame on the Washington Realtors (the organization, not necessarily the individuals) and Lennox Scott for encouraging more of the same the type of irresponsibility that got us into this mess in the first place.

(Aubrey Cohen, Seattle Real Estate News, 2009.04.17)

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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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    Acerun says:

    “Down-payment assistance to our first-time home buyers is the key we need to unlock economic activity throughout the state,” Greg Wright, president of the Washington Realtors, said in a news release. “This tax credit is new money that we can put to work now to help the housing market and ignite economic action statewide.”

    I think this is a slanted view with special interest towards real estate profits.

  2. 2
    Jon says:

    Real estate has become such a joke.

  3. 3

    “Down-payment assistance to our first-time home buyers is the key we need to unlock economic activity throughout the state.”

    Lower prices would be an even better key to unlock economic activity.

  4. 4
    Bernie says:

    I agree it’s a bad idea to use the tax credit as a loan to be paid back next year. That has bad news written all over it. I think the better option for first time buyers is to file an amended 2008 tax return and receive the $8000 this year. Anybody have thoughts on this?

  5. 5
    Notorious ART says:


    “Lower prices would be an even better key to unlock economic activity. ”

    You couldn’t have said it better!

  6. 6
    DavidB says:

    This plan raises a lot of questions.

    For example, what if the homeowner doesn’t repay the loan? Does the State have a lien on the house? What if there isn’t any equity in the home because of falling home prices? What if the homeowner doesn’t qualify for the tax credit and they can’t repay the State?

    This is a bad idea and not the intent of the tax credit in the first place.

    The free market should be left alone so home values can adjust to “natural” levels. Creating a false bottom will just delay this inevitable price correction.

    Edit: I thought of another question, where does the State get the budget for these loans? I thought we were running a budget deficit and programs had to be cut. It doesn’t make any sense to loan money to the real estate market especially since the realtors and other “experts” say we’re at the bottom and seeing signs of strength.

  7. 7
    What The Heck says:

    I find this unbelievable. We have a huge state deficit and now we’re going to make loans? It may take two years for many of the loans to get paid back, if they get paid back. Isn’t borrowing the down payment a no-no? Why don’t we throw $400 a month for food stamps along with the deal. Anything to get the excise tax coffers flowing again. Arrrgggghhh!

  8. 8
    ARDELL says:

    It is a long standing principle that buyers CAN NOT use “borrowed funds” as part of their “cash to close” in a home purchase. I see the loophole here as calling it “a bridge or swing” loan, but those are usually reserved for “swinging” the buyers own funds from a home sale that is in escrow.

    Most recently my buyer clients have needed that $8,000, especially if they are buying a great deal like a bank owned property, to make repairs within the first year of closing. Some of the best values are homes that need “TLC” or that have a roof that isn’t leaking…but is on its last leg.

    I have been asked “how do I use the $8,000 credit to buy a house” and my answer is always “you don’t!”. If someone doesn’t have the money to buy a house, that means they also don’t have the money in reserves to meet unexpected needs of that home in the first 18 months or so. I also don’t think people should use the credit to go to Disney World :) Better to have a cushion against job loss or salary cuts, needed home improvements, or anything that is long term home related.

    The credit is supposed to take some of the fear out of buying, not be the difference in whether you can buy or not. I don’t and can’t agree with everything The Tim said in this post, but I do agree with it being a bad idea to help people use the credit to buy a house, who can’t afford to buy a house without it.

  9. 9
    anony says:

    Could I just buy a house right now, take the $8000, and mail back the keys?

    Are the banks really stupid enough to loan money on a house with the buyer pulling $8000 out of the side? OK, sorry, dumb question.

  10. 10
    Jeremy says:

    What about buyers who don’t owe $8k in federal taxes? Or if they don’t qualify for the full credit? It could get ugly if the amount given back is wrong too. Nevermind all the other valid issues brought up earlier.

  11. 11
    EconE says:

    I’d love to see a John Lennox Scott “Laugh-a-thon” thread where we dig up all his televised interviews from the past.

    Or we can just laugh at their script reading “professionals”…

  12. 12
    Plastic Bags says:

    This is insane. My husband and I plan to take advantage of this tax credit this year by amending our taxes after we buy a house. With an FHA loan, in the entry-level house range you are needing about a $10k-13k downpayment. If you aren’t able to save up that much, maybe it’s a good idea to keep renting? Depending on the condition of the house we buy, we’ll probably take $2k or less to make improvements and save the rest.
    The last thing I want is the gargoyle meddling in my house purchase.
    One last note, to those asking if the banks would be this dumb. YES YES YES. The amount of money they approved us for is insane. So much for them being more conservative. Maybe the number would work if we stopped contributing to retirement accounts and emergency fund and then lived off ramen noodles. Our max is about 30% under what they approved us for. That’s still too big of a discrepancy to say the problem is getting fixed.

  13. 13
    Ray Pepper says:

    8k here!!!!…..75% commission back there…………Buyer Bonus here!!!……….Builder Credit there!!!!…………….

    Good Lord!!!!!!!!!!!!!!!

    I don’t know about you, but the last time I had so many lucky bucks thrown at me was at the Silver Legacy in Reno.

    They had an agenda as well.

  14. 14
    Scotsman says:

    You people are such pills- let folks use the tax credit to by a house. Realtors need to eat, inspectors and title folks need to eat, lenders need to eat, etc. And there are thousands of guys who want to buy a house so they can get their wives off their backs, to hell with the consequences. Let’s get this economy moving! Go buy something today, preferably on credit so those poor banks can get a little action going too! And don’t worry, the government is back-stopping EVERYTHING from mortgages to new car warranties, so if it doesn’t work out, so what? /sarc off.

    in other news, my buddy who just had to buy his dream home in Trossachs is now $225K+ underwater, a drop from $800K to $575K and falling. His flip, (rented) is now upside down too. I’m watching to see if Ray’s theory that even the solid citizens will walk comes true. But I don’t talk about real estate with my friends anymore…

  15. 15
    ARDELL says:

    Jeremy: “What about buyers who don’t owe $8k in federal taxes?”

    You don’t have to “owe” taxes to get the credit. If you do owe taxes, it gets deducted from the credit. If you owe them $1,000 as example, you get $7,000 vs. $8,000, as I understand it. Check the refund form and instructions. They offer excellent explanation of all the rules that apply.

    Most importantly is the one that you cannot have owned a principal residence in the last three years.

    I’d like a list of lenders that will approve a new mortgage with $8,000 of the downpayment being a loan. That would be an interesting list.

  16. 16
    SpiderMan says:

    Where do you get these deails of NOTs ?

    Bubble reders,
    Any one of you bought a foreclosed home to live in ? I would like to buy one …but have no clue on where to start ..
    If any one of you bought a foreclosed home, can you write a detailed blog post ? That would really help lot of folks ..

  17. 17
    Eastside Westside it's all good says:

    “I’d like a list of lenders that will approve a new mortgage with $8,000 of the downpayment being a loan. That would be an interesting list. ”

    So calling it a loan – I’m guessing a secondary lien on the property because it’s the only way it would fly with mortgage providers – really solves the problem??

    Thanks Ardell, for confirming the point of Tim’s post.

    The problem remains – trying to use more borrowed money to prevent prices from resetting to where they should be in the first place. Money borrowed from taxpayers like me. Everyone in the real estate industry made a fortune on the way up – including mortgage brokers earning $40k/mo+.(I know at least three twenty somethings lamenting that the days of $60k/mo as mortgage brokers are over). There are hard falls for many folks. And they all sadden me – except for those who benefitted from this crazy bubble that continues to crush this country.

    GM is having to make hard choices for their mistakes and there is substantial collateral damage that the government is allowing to take its course – car dealerships, parts manufacturers, etc. All this is being allowed to happen while one could argue that there are real national interests in preventing the collapse of domestic car manufacturing (i.e. defense mfg that comes from within the auto industry).

    There is no comaparable national interest in the real estate industry – no manufacturing interests, no technology that needs to be preserved. The chips are being allowed to fall around the country. GM, United Airlines, Unisys and Clear Channel Communications are on the verge of bankruptcy. And realtors still have the audacity to say “hey, help us – we matter more!”

    John L Scott and the rest of the RE industry – everyone who faciliated this mess we are in – does not merit any protection or subsidy. On the contrary, I suggest the opposite. Under the theory of unjust enrichment or even using RICO statutes, lets recover indsutry profits that were made in the bubble run up the last 5 years and use THAT money to save our economy.

  18. 18
    Bellevue Resident says:

    What’s next? Govt starts giving pay day loans?

    This is crazy. Exactly the kind of stuff you don’t need in an environment of rising loan defaults and unemployment.

  19. 19
    ARDELL says:


    There are 3 types: Pre-forclosure/short sales – AT Foreclosure/Trustee Sales and Post-Foreclosure/Bank-Owned Properties. The middle group, buying at “the courthouse steps” is the most dangerous for a novice. You usually have to buy cash and sight unseen. Some groups front the cash until you can get a loan, but they aren’t cheap. You also get a lot of bills with the house, as the closing doesn’t go through escrow.

    Sticking to Pre-foreclosure short sales or Post-foreclosure/bank-owned properties will give you less risk. I’ve found bank-owned to be a lot easier than short sales, and not too much unlike a regular purchase.

    If you are not on the West Coast, a Trustee Sale may be called a Sheriff Sale. These two categories are the true “bought at foreclosure” categories.

  20. 20
    ARDELL says:

    The Tim,

    “…it is not received until up to a year after the actual home purchase was made.”

    Since you can take a 2009 purchase as an amendment to your 2008 return, I don’t think it takes very long to get the funds after closing. I have a client who closed last Thursday and mailed their amended form in the day after closing. Will let you know how look it takes for them to get the actual check for $8,000. They promised to email me as soon as they get it.

  21. 21
    Jillayne says:

    SpiderMan, one of my students is going to put on a class for homebuyers on how to buy bank-owned REO homes. I referred her to Tim to buy an ad on SB to promote the class. Let me konw if you want me to give you her contact info: jillayne at gmail.

  22. 22

    RE: ARDELL @ 8

    Actually FHA allows loans for down payment from family members…so they can quit calling it a gift when in reality, it’s probably going to be paid back.

  23. 23
    b says:

    In other news, the price of every home in the state rose $8k overnight…

  24. 24
    P says:

    Sell it to ’em for free

  25. 25
    Jillayne says:


    LOL. Maybe. We’ll have to wait and carefully look at the sales prices if this proposal is passed.

    Not sure a $8K bump would help the majority of short sale sellers. It may make prices sticky in other places like new construction.

  26. 26
    David Losh says:

    You can see the spin coming from a mile away. This afternoon I spent several hours with a Real Estate agent who bought into a lease with an option to buy. I was trying to help him unwind the deal from a year ago.

    Pay attention: lease options were last years scam to get foreclosures sold, this year it will be the tax credit. People will buy with a false sense of security into an asset going down in value.

    The foreclosure process and REO properties are getting to be a drain on home prices. Banks need to sell millions of housing units to survive. Desperate sellers make very motivated price reductions.

    Banks will be needing to unload millions of units, millions.

    This tax credit is 8% of a $100K. If you buy a house for $100K and it goes down in value by 8% the credit means nothing.

    Short sale classes of last year made thousands of people stuck with over priced homes this year. REO classes this year will have thousands of people stuck with over priced properties next year.

    Banks need to correct the REO problem. The consumer will be hard pressed to buy the banks out of inventory. There will be a point where the system collapses.

    Until banks come to the table with workable solutions for collecting outstanding loans defaults will rise, and prices will go down.

  27. 27
    shawn says:

    Here is the problem, people (GOV, RE) keep trying to sell bubble items that there are no longer bubble demands for. It is over, plain and simple. Right now we just have the last few desperate attempts to restart the bubble, or stop its popping. Does anyone have any stories of where in the past a bubble was resurrected? It seems to me that they are usually followed by new different bubbles,, then RE, for example. I am sure there are always attempts to keep it going, but surely they always die and are replaced later by new different ones.

    It is getting both sad and pathetic. Like a jilted lover that has become a stalker and just cannot see the obvious that everyone else can see, it is over.

  28. 28
    Ray Pepper says:

    RE: Scotsman @ 14

    Scotman…shhhhhhhhhhhh…gather around and listen closely…………”solid citizens” are and will give their homes back through short sales and foreclosures for many years going forward. I will remind you we are a mobile society and people do NOT have the funds to bring to close in order to get their home sold.

    The term SHORT SALE will be as common in real estate as granite counter tops in 2003-2006 . Vast numbers will walk and countless numbers will attempt short sales in the next 10 years.

    I remember watching the head of HUD and they asked “What advice do you give homeowners going forward.?”

    There was a pause, a deep breath…then…….”Keep up your homes, mow your yards, and everything will work itself out in time.” The anguish in the voice was easily apparent. The writing is on the wall.

    I must say it again………We have seen nothing yet and people are NOT stupid! Life and family are far more important and do not judge your neighbors and friends in their decisions in the coming years.

  29. 29
    The Tim says:

    By David Losh @ 26:

    This tax credit is 8% of a $100K. If you buy a house for $100K and it goes down in value by 8% the credit means nothing.

    Good point David. To give that number a little more perspective:

    Home Price | % Decline to Wipe Out Tax Credit
    $200,000 | 4.0%
    $300,000 | 2.7%
    $360,000 | 2.2% (approximate current King Co. Median)
    $400,000 | 2.0%
    $500,000 | 1.6%

    …you get the idea.

  30. 30
    Jonness says:

    “…you get the idea.”

    The idea I’m getting from this is the tax credit can be wiped out with a single month of depreciation.

  31. 31
    David Losh says:

    Let me be more clear that there are properties worth owning and keeping for a wide variety of reasons. Relying on gimmicks to generate sales should have been a caution.

    Just to remind you: my niche in Real Estate was working with investors. My favorite saying about Real Estate is that the numbers are the numbers. The numbers either work or they don’t. Some numbers still work.

    Real Estate is a business, even if you are buying to be in a certain school district, or neighborhood, you should know that the numbers work for you and the family.

    There are properties worth paying off, fixing in a prudent way, and handing down from generation to generation. The family home is the American Dream. Having a box to throw your consumer crap into is something else.

  32. 32
    James says:

    Well I don’t know about the rest of the world but, I just had an offer accepted on Friday that should close in the next 20-30 days. I filed an extension on the 10th and when it the house closes I plan on filing to get that $8000. I don’t see why I would need a loan from the state in the next 90 days? Anyhow as for what that $8000 means? We get to get in to a new house with $8000 less owed in car payments. This means in 4 months we will have less money leaving to house/car/student loan etc than we do today while renting. Our monthly expenses go down and we get a better (MUCH BETTER!) place to live that the current rental. Eventually some principal gets paid rather than having every cent go to nothing and we get a more stable place to live. I don’t have to deal with the crap of landlords who need me to move out so a degenerate drug addicted son can have a place or just won’t fix the plumbing that flooded my unit anymore.
    Yes I believe the RE market will continue to drop a bit but, If I don’t buy I can guarantee that we will lose at least $16000 this year just by paying rent and more every year after that.
    At some point people have to stop only looking at a home as an investment and believe in a home as a place to live a wanted life. I have found some information here that has helped make me a smarter consumer but, the obsession here is very much like the RE professionals obsession with transaction and it seems the living is forgotten. That is what really created the bubble and what continues it.

  33. 33
    tomtom says:

    Allowing people to borrow more money doesn’t make homes more affordable.

    When will the govt figure this out? Loosening lending standards is what got us in this mess to start with.

  34. 34
    Robtr says:

    How is a new law passed by the democrat controlled state legislature (the first time buyer loan) the fault of J. Lennox Scott and the Washington Realtors? Last time I checked niether Scott or the realtors get to vote in the democrat controlled legislature.

  35. 35

    By Robtr @ 33:

    How is a new law passed by the democrat controlled state legislature (the first time buyer loan) the fault of J. Lennox Scott and the Washington Realtors? Last time I checked niether Scott or the realtors get to vote in the democrat controlled legislature.

    Because the real estate and financial industry has power, influence, and lobbyists, and Democrats and Republicans alike have historically kowtowed to them.
    You think Republicans haven’t gone out of their way to be helpful to J Lennox Scott and his minions?

  36. 36
    Softwarengineer says:


    I’d add to my general agreement with the gang; why are we handing out $8000 tax credits like candy when Obama wants a $700B health care plan on top of our grandkids’ current trillions of dollars debt to the banksters?

    This country has gone out of its mind and if you think the bottom 95% of American incomes won’t be taxed to death by 2010/2011 for these insane government actions; I’ve got a bridge to sell you or another state tax increase to put under your Christmas tree.

  37. 37
    DrShort says:

    Finding “creative” ways to get people into homes with big mortgages they couldn’t otherwise afford is exactly how we got into this mess. I can’t believe this is even being suggested. I am already dismayed by the number of 3% down FHA mortgages being passed out in a declining market.

  38. 38
    Jonness says:

    “If I don’t buy I can guarantee that we will lose at least $16000 this year just by paying rent and more every year after that.”

    Depending on your situation, you’ll most likely lose more than this in interest payments, taxes, homeowner’s insurance, mortgage insurance, and maintenance. Let’s look at the numbers assuming your home costs $400K and you put 10% down at 5% interest and home prices depreciate 20% over a 2 year period.

    Amount borrowed: $360K
    Monthly payment: $1933
    Monthly PMI (est.): $125
    Monthly Tax (est): $300
    Monthly Ins (est): $100
    Maintenance: I’ll say $0 but it could be a lot more.
    Total per Month………$2458

    TwoYear Period
    Total Payments: $58,992.00
    Interest and Expenses: $35,487.00
    Depreciation: $80,000.00
    Principal paid: $10,894.00
    Tax Savings: $1,500.00 (guessing)
    Tax Rebate: $8,000.00

    Losses – gains (not counting principal): $105,987.00

    So by renting for 2 years, you lost $32,000.00. By buying for 2 years you lost $105,987.00. But wait, you effectively took out a loan for the difference of $73,987.00. In the above mortgage, it will take you 10 years and 8 months to pay back the $73,987.00 that you borrowed in order to live the good life for that 2 year period. Your total expenditures at this time will have been $230,381.00 (the break even point).

    Meanwhile, the alternate you who waited 2 years and then bought will have lived the last 8 years completely free of having to pay back the extra $230,381. Now that’s what I call getting on with your life. Face it, borrowing a couple hundred grand to finance 2 years of happiness is not the best decision for your happiness because it takes 10 years and 8 months of excruciatingly high payments to pay it back.

    Yes, you have some principal in your house, but that money put out was not factored into the losses cited here. You could have saved that and more by continuing to rent and used it for a higher downpayment to skip out on the PMI, thus skewing the numbers even further against you.

    This kind of buy now, worry about it and pay later is exactly what got this country into this mess in the first place.

  39. 39
    Jonness says:

    As I read the above, I’m appearing to be more of an arse than I mean to be. I wish I could rephrase the last sentence. Also, under the section Interest and Expenses: $35,487.00, that should be $48,087.00 as I left out all the non-interest expenses. I’m falling asleep as I’m typing and can’t think clearly, so I won’t add up the difference, but it makes it even worse. In short, add it to the losses minus gains and extend the loan to pay for the 2 year bliss out about another year.

  40. 40
    David Losh says:

    RE: James @ 32RE: Jonness @ 38

    There is one factor that is being ignored constantly about renting. Comment #32 states: Our monthly expenses go down and we get a better (MUCH BETTER!) place to live that the current rental.

    Rental property is a rental. Given the number of land lords who are also stretched or leveraged living in a rental seems kind of risky to me.

    I think many people who have a Real Estate portfolio will also be reworking the numbers as rents go down and our population becomes more transient.

  41. 41
    James says:

    I think the thing that is way worse for our current economic system is the fact that I currently have enough credit available in my wallet that I could charge a house in most parts of the country today without calling a bank. Believe me those shoes or TV or trips to Costa Rica are going to be a lot harder to repossess when the loan defaults than a home.
    The housing market is corrupt and out of control and my feeling is the only way to get it back in line is to break the buy and sell mentality we have here. We have to become buy and live or the only people that get anything out of “Ownership” are the agents and those wretched mortgage brokers.
    I’ll fix a bit of math for you.
    My monthly total is $1911 (Tax,ins and all).
    Current rent for what really has become worse in the last 4 years and is not getting fixed $1300.
    So if we say there is a $150 per month tax incentive (or if you like interest adjustment) because this drops us into a lower tax bracket our monthly difference is $450.
    The $8k we are getting from the money printers (I like to think of it as a return on the SSI I will never get to see) pays the auto loan down to where we have only 4 payments or so saving $500 per month. Huh.

    I know it is not a popular belief here but, I have no doubt that in 5 years this house will be worth as much or maybe just a little bit more than it is today. In 10 more than that.
    I also have no doubt that my current place will have flooded at least a few more times, a crack head and his friends will move in the unit next door, our utilities will continue to be out of control because the place is old and yes our rent will be at least $300 higher than today. On top of this we will probably get booted at some point because the landlord want to turn the place into a condo villa.

    Buy and hold. Try it! It really pisses the real estate agents off.

  42. 42
    David Losh says:

    RE: James @ 41

    You are so right.

    What many people here on this blog keeping coming to is that there will be a point in the near future when house prices come in line and mortgage payments will be what rental payments are today. Rents will go down, but there is a bottom to rents that will be a constant.

    I’m going to pick a date in the past that seems to be working for a variety of theories which is 1998. Whether you factor in the 4% inflation increase to today or just keep to values of ten years ago you should be able to figure out how to make an offer.

    It really makes no difference anyway. It’s only money. As many, many people point out there will be a point in the future when the value of money is inflated to a point where you will be paying off your house with over inflated dollars.

    Best of luck to you, it was a smart thing to do in the fact it was well reasoned. The numbers are the numbers. If the numbers work for you then that’s all that matters.

  43. 43
    Me says:

    One point that comes up on a good number of postings above is the argument that this is bad because it will only delay the inevitable drop in prices.

    That’s not such a bad thing, and actually I think it’s the main purpose of the real estate based stimulus plans. Here’s why:
    1. Natural inflation has more time to work (this is the soft bursting of the bubble concept). I.e. if natural inflation is 3% appreciation a year, then the ammount of depreciation (peak to bottom drop) needed to get back to a balanced price point for real estate is less if the drop occurs over an extra couple of years.
    2. Some of those who would walk away from their mortgage may stay and continue payments. I’m talking about the the ones that can make payments but think that their so underwater that having a foreclosure on their record is better than continuing to make payments on a house that is underwater.

    I’m not saying that I agree 100% with the real estate stimulus plans, I’m just saying that delaying the deline is a main goal than that is not a bad goal. I do believe the stimulus is currently unbalanced. Basically volatility in real estate prices is the enemy (steep increases AND steep decreases). If only the government, banks and consumers would recognize that and work towards ideas that decrease both up and down side volatility .

    For example limit deductions on capital gain to an ammount equal to inflation for the duration the property was owned as a way to decrease upside volatilty or require banks to hold greater reserves for loans made on properties in areas with price increases that exceed inflation (that would translate into tighter lending standards in these zip codes thus limiting the bubble growth). Combine such upside volatility limiting policies with efforts such as the current stimulus to limit downside volatility and we could see a much better real estate market for everyone except the speculators. The problem is that govt. will probably only do one half and half of a good idea is the way we got into this problem in the first place.

  44. 44
    Ray Pepper says:

    RE: James @ 41

    James…if I may. Of course your home will be worth more in 10 years (not much though). Real Estate Agents could care less if you buy and hold. Homes will ALWAYS be bought and sold. The 35,000 Agents at the NWMLS will also begin dwindling and we FINALLY will be entering a far more consumer friendly/cost effective model of real estate sales. The consumer will not put up with this 6% BS for much longer.

    Just dont underestimate the damage that has been done to our country and the decade ahead that will be very difficult. I posted this video once before but Howard Davidowitz has always been right since I have tracked him and I suggest you watch. “America will never be the same!”

  45. 45
    Kary L. Krismer says:

    One of the things I liked about the credit was it didn’t qualify someone to buy, but instead replenished their savings after. This is a bad idea.

  46. 46
    David Losh says:

    RE: Me @ 43

    The stimulus is for the investors. Real Estate has become the more visible reason to push for giving banks, and brokerages money because we can all more or less relate to the family home.

    The problem is wages. The problem is cheap goods selling for regular prices when they should have been cheaper. The problem in orchestrated financial engineering that created the paper profits we all saw in the stock market. It started with intellectual properties and ended with Real Estates.

    In my opinion Obama did more good for the economy with his presence in the foreign arena than all the money he threw at banks. Globally we can expand the economy. The United States still produces the most goods and if we were to deliver more high quality goods built by well paid workers we could expand into today’s home prices.

  47. 47
    Jonness says:


    I was falling asleep between typing that post, so it was difficult for me to convey what I intended. What I meant to say was in a few cases it makes sense to buy now. I think there are some gems out there worth considering, but I think less than 1 out of 100 homes meet my special requirements of being somewhat fairly valued in the current market.

    I believe home prices will come down at least 20% more in this area, and this will happen within 2 years. Thus, when you say, “the obsession here is very much like the RE professionals obsession with transaction and it seems the living is forgotten”, I take exception to that statement and will attempt to show why in most cases the unhealthy obession really is “buying now.” IOW, What is the backside cost of making the decision to buy now going to be in most cases?

    The obvious problem with buying now is most buyers have to finance the 20% depreciation. Let’s look at my example of a $400K home with 10% down @ 5% interest with home prices depreciating 20% over the next 2 years.

    Interest on loan for 2 years: $35,487.00
    Related expenses for 2 years: $12,600.00

    Subtracting cost of renting leaves $16,087.00
    Subtracting tax rebate etc leaves…$6,587.00
    Adding home depreciation equals….$86,587.00

    Notice in the following chart, it took San Diego about 9 years after the 1990 runup to get back to the peak. IOW, there’s no use hoping for a V-shaped housing recovery. That’s not how the game works.

    So we need to figure out how long it will take making the standard payments on the $360K loan to break even with where you could have bought in after 2 years of renting (i.e. finance the $86,587.00 loss) . We reach this point after 11 years and 2 months of making payments on the mortgage and have paid a total of $195,464.00 in interest payments on the mortgage. We won’t add in taxes, insurance, etc. because we’d pay that after 2 years anyways.

    Is homeownership over the next 2 years worth paying an extra $100,000.00 per year to most people? I personally believe that freedom from being a debt slave is as close to true living as one can get. But I admit, in the U.S., I am of the few who feel this way.

  48. 48
    Jonness says:

    This example demonstrates the biggest problem with buying now. It’s bad enough losing money on depreciation, but it’s magnified when you have to finance that depreciation. You can typically figure it will double the loss. Hey, I’m not happy about any of this. It keeps me from my ultimate goal of buying a house. At some point, I’ll decide to take a loss and move, but for now, I just don’t have that kind of money. I’ll only earn a finite amount between now and death, so I have to be cautious with how I spend it.

    This opinion is probably unpopular, but I think places like Vegas are not such a bad buy right now. The problem I’m presenting is mostly geared to places that haven’t corrected much yet, such as New York and Seattle.

  49. 49

    The problem with buying a home in Las Vegas is that you’ll have to spend time there.

    There are some parts of the country that just didn’t see such a huge run up, and their declines are now a lot smaller too. Little Rock, Arkansas, for example. There are parts of the city that you’d mistake for Wallingford, but you can buy a nice house for 150,000, and have the rent more than pay for the mortgage..Summers would be pretty unbearable, though.

  50. 50
    Ray Pepper says:

    RE: Jonness @ 48

    Jonness you just realized this? 6 months ago homes were down 70% in parts of Vegas and Sacramento. The investor money began moving into these areas. They have now crept back up to 50% from highs. The shuffling of investor properties in/out of LLC’s is happening daily. The dogs have and are being foreclosed on while the GEMS are being scooped.

    I truly hope I’m not the first to tell you this.

  51. 51
    Jonness says:

    Ray, I used Vegas as an example because it’s seen some price stabalization after a massive freefall. By contrast WA is on the verge of entering its freefall period. IOW, to see where we are headed, rewind to when Vegas was where we are now. For those that are non-believers, read and contemplate this study:

  52. 52
    anony says:

    Why would a house be worth more 10 years from now? Wouldn’t it be the same house in the same neighborhood just 10 years older? If you are just counting on inflation increasing the number of dollars you could get for it I would say it is the dollar that may be worth less, not the house worth more.

  53. 53
    The Tim says:

    Prepare for a shock. Everybody’s favorite SREP thinks this is a great idea.

  54. 54

    […] plan referred to in the second story above would be the irresponsible, counter-productive one we discussed here last month. Frankly, I hope the IRS figures out a way to prevent people from […]

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    […] kick things off with some good news via Aubrey Cohen at the P-I. Looks like the state’s irresponsible plan to pre-distribute $8,000 tax credit is dead in the water, thanks to the […]

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