The statistics that point out the percentage of home owners that are upside down are staggering. Depending on who you talk with, there are anywhere from 20% to 50% of current home owners that owe more money on their homes than they are worth on the open market... As a home owner, I understand... I'm right there, too.
And there are a lot of experts that agree that until we deal with that statistic, and make a significant dent in it, we can't begin recovery in the housing market. In effect, many of the people that might be in the housing market are sidelined because they are trapped in their homes. Or worse, they are being forced to walk away and be sidelined from the housing market for years as a result of the amage to their credit from a foreclosure or short sale.
Many of those that mention these statistics do so as a means to promote one plan or another to help upside down home owners. And while I understand the desire to help people that are financially hurting, I also think there is a fundamental unfairness toward those that aren't trying to sell their homes and aren't upside down in their mortgage. People that were conservative or had the financial capability to pay large amounts down... or even pay cash aren't rewarded the same way...
I am also a supporter of the FairTax. If you aren't familiar with it, you should be... It is a transparent and evenly applied consumption tax. Rather than taxing income, it would tax spending. Without going into a long explanation of the tax, it would be like a sales tax on all new goods and services sold to consumers. It also has a "pre-bate" component that would effectively remove the added tax burden from those at or below the poverty line. The more money a person spends, the more taxes they pay...
Melding these two things together...
Because it taxes new goods and services, but doesn't tax existing goods, the FairTax would effectively add value to existing homes. Initially, the price of new homes would be pushed up by the tax. There would be a balancing factor in that "take-home pay" would increase. No more federal taxes, Social Security taxes or Medicare taxes would be withheld.
Initially, I think this would increase the cost of new homes. However, within a couple of years, it this increased cost would likely melt down significantly. Simplified bookkeeping, as well as reduced costs for suppliers (removal of their tax component) would decrease the impact of the tax... but existing homes would still maintain an advantage because there wouldn't be that tax component.
So...
This would add value to most (if not all) existing homes. The value would be added regardless of the situation of the current owner. It also wouldn't be added via government redistribution of wealth.
It is also likely that the FairTax would lead to a growth and expansion period in the economy. But that is a different post...
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