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Homebuyer Stimulus Plan -- Won't Work -- Do the Math

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I received an email message from a Realtor today, who was complaining about the Federal stimulus package. His position was that the Senate bill was better because it gave twice as large tax credit to every home buyer (not just first timers). I thought about this for a while, and decided that it just doesn't add up.

It makes sense that Realtors want the tax rebate for EVERYONE on EVERY home purchase. Realtors make money when someone SELLS a house AND when someone BUYS a house, so by only encouraging first-time owners, they'll only get (at most) half as much new traffic. It sounds like a good deal for first-time buyers, they get to take advantage of the tax rebate and they should come out ahead.

But does this "stimulus" actually work out well for people who are house-swapping? Let's do the math.

Conveniently, $15,000 is exactly the 6% commission on a $250,000 home. So anyone with a $250,000 home to sell (they lose $15,000) will get their Realtor commission back from the government if they buy another $250,000 home.

Sounds like break-even for those house-swappers, yes?

But it isn't.

For everyone (practically all of us) in diminishing house value markets, there's another (BIG!) problem to consider. Someone who had paid $350,000 (with 20% down and 80% financing) for a home that is now worth only $250,000 when they try to sell it, simply can't afford to buy a $250,000 home. Why? Because they will owe $30,000 on their old mortgage and will need an additional $50,000 to make a 20% downpayment on the other home they want to buy. PLUS they have to pay the Realtor $15,000 on the sale of their old home. Basically, with a 30% home price downfall, since they have NO equity in the home they want to sell, this house-swapper MUST HAVE $95,000 CASH ON HAND to make the transaction. Then, around a year or so later, they'll get (only a mere) $15,000 back as a tax credit.

Pay $95,000 to get $15,000 back? Whoops!
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That does NOT sound like a good deal.

ESPECIALLY when you consider that's $95,000 CASH that the house-swapper COULD have spent at Home Depot or Lowes for new siding or windows or adding a deck or building a back room addition and so on, improving their home and their neighborhood, if they just kept their old house. But now they don't have that $95,000 to spend because they they gave it to Realtors and banks in order to get out of their old mortgage and get into a new one.

So yes, this house-swapping stimulus plan IS a good idea for the BANKS, because it gives them some of their capitol back (that they lost when the houses were depreciated in value and foreclosed), so they can lend it out in more bad mortgages that their new (or even some of the same) customers can't afford.

But this "stimulus" is NOT a good idea for someone who already has a house and no reason other than a tax rebate to buy a different house. Heck, it's not even a good idea for someone who needs to move. They should keep their old house, rent it, and use the rental income to rent someone else's house someplace else.

Lo and behold, all these "stimulus packages" do is give more money to the BANKS, and this is another example of the big rip-off that the banks have been playing on us for the last few decades.

Like the bank rip-off that encouraged home buyers to take out adjustable rate mortgages that would eventually exceed their abilities to pay, and then they lost their jobs (AND their homes depreciated), so they couldn't refinance at lower rates, so then they lost their homes to foreclosure.
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Or even worse, like the bank rip-off that encouraged people to take out interest-only mortgages, gambling that their house prices would go up but they instead they went down, so now they're under-water big time, etc.

And also like the bank rip-off that encouraged people to buy items that they couldn't afford, using credit cards with interest rates that climbed up above 25% ensuring that the enticing "low monthly payment" would keep the cardholder paying for those Home Depot and Lowes purchases for 30 or more years. And so on.

NOT a good thing. Except if you're a banker.

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http://www.notablesoftware.com

Rebecca Mercuri has been in the forefront of the voting integrity movement since 1989. She provides expert witness services for elections and other forensic computing matters.

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Anything the corporate government comes upwith wil... by Dennis Kaiser on Wednesday, Feb 11, 2009 at 10:04:34 AM
Boy, you can sure confuse a person with numbers an... by virginius "gin" arnold on Wednesday, Feb 11, 2009 at 10:52:33 AM
Why would anyone send this to their congress perso... by Rex Johnson on Wednesday, Feb 11, 2009 at 11:14:08 AM
I enjoyed your article and felt no need to double ... by wagelaborer on Wednesday, Feb 11, 2009 at 3:59:58 PM
if you check the facts you will see that for the m... by virginius "gin" arnold on Wednesday, Feb 11, 2009 at 8:56:30 PM
That's the problem.  It's a place to ... by wagelaborer on Wednesday, Feb 11, 2009 at 11:12:25 PM
Just another example of the homebuilding lobby and... by gordon nelson on Wednesday, Feb 11, 2009 at 6:07:02 PM
Explain this, please.Better yet, do an oped on it.... by wagelaborer on Wednesday, Feb 11, 2009 at 11:07:51 PM
Loss carry back is not a new idea----been around f... by virginius "gin" arnold on Thursday, Feb 12, 2009 at 8:59:20 AM
Thank you for writing this article.  My fianc... by Colleen De Koning on Thursday, Feb 12, 2009 at 2:05:54 PM