As the real estate market continues to languish, and prices continue to drop I don't see the government doing much to help. The politicians keep talking about doing something to help those that are in danger of losing their homes to foreclosure but even that seems to be going nowhere. I believe the solution is developing programs that will stimulate buying. Once that happens, prices will stop dropping and there will be fewer foreclosures because home owners will be able to sell their homes. The $7,500 tax credit program that the politicians created was pretty much useless, as evidenced by the lack of interest in it. The new $8,000 tax credit is more beneficial since the buyer does not need to pay it back if they stay in the house for 36 months. Low interest rates are great but if the buyers can't afford the down payment, closing costs, and yearly property taxes, low home prices and low interest rates still do not get the market moving.
I know that local and state governments rely heavily on transfer taxes and property taxes to fund their various programs, but at some point they have to realize that they have pushed those taxes over the limit. People can no longer afford to buy or keep the homes they own. We are now at a point where the housing market has almost come to a stop and the government is taking in less revenue as a result. Local municipalities think that the solution is to reassess the home values higher and that will solve their revenue problem. In fact, it does just the opposite. Houses become even harder to sell, foreclosures go up as a result of the high property taxes, and the downward cycle continues. The greed and wasteful spending programs of government have forced them to continue to find new and creative ways to increase revenue. The result is what we are seeing now in all facets of our economy.
So what is the solution? History has shown over and over again that lowering taxes actually generates more revenue as a result of increased market activity. If the federal government truly wants to get the housing market moving again it must provide the states and local governments incentives to reduce the tax burden on homeowners and home buyers. This could come in the form of payments directly to the states for each home sale or direct payments to the home buyer. The Downpayment Assistance Programs that were eliminated recently should be reinstated, with some strict credit score criteria. This program allowed the seller to contribute to a nonprofit organization that would then provide a portion to the home buyer for downpayments. When used properly, the DPA costs the government nothing and provides the critical downpayment help that can help get the home buying/selling moving again. Another approach would be to eliminate the restriction on the amount that the seller can contribute to the buyer's closing assistance. Elimination of the restriction or reinstatement of the DPA could be tied to the buyers' credit scores. A higher score would allow a higher downpayment contribution from the seller. The problem many potential buyers have is not their ability to meet the monthly mortgage payment. Rather it is the ability to come up with the outrageous downpayment and closing costs. Here in Maryland we have some of the highest closing costs in the nation.
The high closing costs and high property taxes are continuing to inhibit a positive housing market. Until this issue is properly addressed, I just don't see how the market can recover. On the other hand, if this problem can be solved, the housing sector can lead the nation out of the severe economic slowdown we now find ourselves in.
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