I'm not an economist, and I don't play one on TV. However, as a Realtor, I do have an opinion on what it will take to get all of the excess inventory sold everywhere.
The $8,000 tax credit
I applaud the $8,000 tax credit for new home buyers in the Federal stimulus package - however I don't think that this is going to do much in the short term. If someone that is considering buying a home right now, they won't see that $8,000 tax credit until they file their 2009 income taxes next year. That is a long way off, especially for first time buyers that could probably use the extra money for a down payment NOW. In fact, I don't think that this tax credit will have an impact until Q4 of this year.
Subsidized interest rates
I'd like to see the banks use the money they've received from the government (or that they are going to receive) to subsidize mortgage rates for ANYONE buying a home. A great incentive that would motivate buyers immediately would be a 4% interest rate. This type of program would help shrink the huge inventory of homes for sale - including the homes that are short sales, pre-foreclosures and bank-owned (foreclosed) properties. Of course this rate would only be for qualified buyers.
Additionally, people meeting certain requirements that need assistance keeping their current home should also get access to this type of rate. Unfortunately, someone that has purchased a home that is way beyond their means should just get out of that home and move on to something that is more realistic for their situation.
Help for unemployed
Maybe banks could offer temporary relief for those that are recently unemployed (again meeting some specific criteria) to help them out temporarily until they get work. I know so many people that have lost their jobs or have had dramatic pay cuts in recent weeks. They shouldn't have to lose their homes due to these temporary situations. This would prevent their homes going up for sale and adding to an already glutted market.
Short sale guidelines/subsidies
A huge bottle neck with the excess inventory is short sale properties. I've written a lot about short sales already, but here is my $.02 on what needs to happen to get rid of this inventory quickly, The sooner these homes are off the market, the sooner the market will stabilize.
- The government needs to provide financial incentives for banks to shorten their short sale approval process from the current 12 - 16 weeks, to something more realistic like 2-4 weeks. Buyers have no patience to wait 3 or 4 months to find out if the bank is going to accept their offer. By the time that happens, many buyers have moved on to something else.
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Create subsidies or some other financial incentive for banks to approve more of these contracts (or maybe use some of the $ that they've received, or will recieve, for this purpose). Buyers right now are looking for great deals, and many short sales could satisfy that desire. However, in addition to taking too long to approve these deals, they won't even approve some reasonable deals. And each bank has different criteria on what what is an acceptable deal.
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Create uniform guidelines for banks to follow for these deals. If they follow the guidelines (which would be structured so that more of these deals are approved) then the bank qualifies for some some of the bail-out money, or a tax break, or something like that.
I talked to one bank that said that they already "wrote off" the home equity line (in other words they've already assumed the loss on their books) on a home that is going through the short sale process, and yet they were still holding out for a larger amount of $ to release their lien on the property. I understand that they are trying to minimize their losses, but if a home goes through foreclosure and/or the sellers declare bankruptcy, they bank won't get any money at all. So why not agree to release the lien and collect some $ from a buyer that is offering CASH to purchase the home NOW? This way we can put someone into the home that can afford it and the home won't go into further disrepair (the current owner can't even afford to maintain it).
Loan restructuring
Let's say someone is having temporary financial issues and they know that in a month or two it will be difficult or impossible to make their mortgage payment. If they call their lender/bank today to try to renegotiate their loan or ask if they can get some temporary relief (e.g. skip a payment or make partial or interest only payment with no penalty), the bank will tell them that there is nothing they can do unless the homeowner is already in default. In other words they won't talk to you until you've already screwed up your credit score and missed a few mortgage payments.
There needs to be some way for homeowners to negotiate with the banks BEFORE they are in default. I realize that there is risk that some people would take advantage of this - there must be a way to do this to help some of the hard-working people that have been affected by the economic downturn. These people have been playing by the rules, paying their mortgages and their other bills, and now the rug has been pulled out from under them. A job that was secure only a couple of months ago is gone - or a self-employed person has seen their business drop by 60 - 70% within a few short months. These people need a little time to get their footing back, to find temporary employment or find a new job. (Hey, how do they apply for one of the new jobs that is being created with the stimulus money - give 'em a shovel?)
That's my thoughts for now. Would love to hear your comments.
Thanks for reading.
nsk
