I attended a presentation yesterday regarding the possible solutions to the real estate problems currently facing Rhode Island, and, one of the things I learned about was a proposal by the National Association of Home Builders to stimulate home sales by artificially lowering 30-year mortgage rates to 2.99% for a 6 month period and to 3.99% for an additional 6-month period.
I was interested in the concept, so I did some additional research looking for news articles related to this.
I found one such article on the association website of the magazine of the landscaping industry. The two primary proposals offered by the association, interest rate lowering and augmentation of homebuyer credits, appear to miss the core of the current real estate market, and, if anything, they could cause additional harm.
Suppose you are a potential homebuyer, and you hear about a proposal to make your buying costs even lower. Are you going to make your move now, or wait and see if things get better?
Well, the bottom line is that home buying costs are at their lowest point in roughly 10 years, as historically low interest rates around 5% mean that home prices around 2003 levels feel like 1999 levels to buyers. Rather than pushing to make this scenario even more attractive, instead builders should be using their influence to inform the public that the situation is already phenomenal.
The other concern I have with the builders’ proposal is that it only partly addresses the true problem – jobs. The real reason I believe first time homebuyers are reluctant to proceed is the fear that they might not have a job to be able to pay the loan 6 months from now. The builders suggest that their proposal will create 539,000 jobs, but that is based on the fallacious assumption that buyers are looking for cheaper housing.
Rather, I believe that our economy needs investment in areas where supply is not already glutted. Here in Rhode Island, we have 164 bridges that have been classified as “Structurally Deficient”, 61 of which have required weight restrictions to remain in operation. Rather than stimulating home building, which is of dubious need, considering current inventory levels, building bridges can help the entire economy. A nice start would be improvements to the Pawtucket River Bridge so that large trucks no longer have to detour along I-295.
One thing I do agree with is a suggestion made by the panelist at yesterday's presentation: do, or do not, but decide. It is important that leadership make a decision to implement or reject this proposal quickly, not because time is of the essence in its initiation, but because failure to announce a decision could cause further vacillation on the part of already confused homebuyers.