Well the housing market decline and everything attached to it, has reared its ugly head now from Wall Street to Main Street. And everyone's going to feel some pain. Home prices still searching for stable ground, 401K's in the trenches, the job market in a spiral, etc. Seems like a never ending stream of dour news. But...there is light emanating from the end of the tunnel. Thankfully, though some may disagree, the government has stepped in to at least try revive our once vibrant economy.
With all of this being said, it's time to take a good look at the other side of the equation. The side of opportunity that is readily apparent for those who have vision beyond the current economic whirlwind in which we now reside. But this will pass and better times will prevail somewhere down the road. And for those who maintain this vision and see value for what it really is, whether stocks or real estate, the rewards should be very handsome over the course of time.
For the here and now, we still have a lot of clean up work to be done. And it won't be easy by any means. But it can and will be done. Now, I'm no economic expert by any means, but I do have a few suggestions that I see as viable jumpstarts to help stem the slide we're currently in. If nothing else, it sure does help to vent. So here are a few of my suggestions:
1) How about a 1 year moratorium on Capital Gains Taxes including gains on Real Estate and Equities purchased within that one year window. Any of these purchases would be recognized as free from Capital Gains Tax as long as the sale occurs outside of the one year window. Note that the sale would have to take place outside of the one year window to discourage trading within the tax free time frame. And this should encourage more investors to adhere to the buy and hold theory.
2) One of the biggest, if not the biggest, culprit behind the wave of defaults and foreclosures in the real estate market has been the free-wheeling , foot loose and fancy free world of finance over the last handful of years. Buyers purchasing beyond their means based on the temptation of ARM financing that was the enabler. Credit markets were open to just about any takers who had a pulse and credit checks were no longer a qualifier, but a determining factor on the initial interest rate to be paid. Then came the reality...ARM's, or Adjustable Rate Mortgages, began to reset with the teaser interest rates gone. So the best hope was to refinance...yet the home could no longer appraise at the necessary value to enable a refi. So the owner is now stuck with a whopping increase in house payment on a house that is no longer worth what he paid. In other words, upside down. And to make matters worse, the housing market continued to head south as more investors and upside down owners defaulted and walked away from their property. So now you have this two-headed monster that has encroached onto Wall Street infecting the lending institutions that encouraged the chaotic lending that began the cycle. SO.....I suggest that we need to try to keep owners in their property and slow the defaults on real property. And one way to do so would be to freeze all ARM rates at a number established by the Treasury and Federal Reserve and covert the loans to fixed rate long term notes. And this number would have to be no more than the teaser rate that enabled owners to purchase in the first place. Maybe, just possibly, this could slow defaults and we could start working through the credit mess from the bottom up.
3) With the Treasury and Federal Reserve freeing up capital for the lending institutions, somehow some of this capital needs to be earmarked for the mortgage market. And I don't mean to clean up the mess driven by the greed on Wall Street. I'm talking about this capital flowing downhill to the Every Day Joe in the form of very low rate mortgage loans that would enable real, qualified buyers to enter the market.
4) Wake up Fanny Mae to the realization that we need more FHA financing available to the Jumbo product to help clean up some of the mess created by investors and second home owners who overbought and are now left holding the proverbial bag. So in a nutshell, increase the FHA Jumbo numbers to realistic numbers that would entice qualified buyers to come off the fence and help clean up some of the overpriced inventory that exists in many markets across the country. And even though there has been an upward adjustment of the FHA Jumbo product, the number still isn't nearly enough. With rigid qualification standards and favorable rates, I believe we'd see quite a bit of high end property begin to filter from the market into the hands of stable ownership.
That's my quick, down and dirty take along with a few suggestions. Again, feel free to let me know if you agree or disagree with any of these ideas. I can take the good and the bad. Thanks and best of luck to us all.
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