New Port Richey, Florida Real Estate Blog

The Poor automakers needed help.   So the government got involved in, not only a bailout, but also Cash for Clunkers.  Once again the government has saved the day, no?  I am sure, like me, you have seen all the empty Dealership lots.  Boy they sure did sell a lot of cars huh?  Good for them right?

Ummmm NO.  There were delays getting payment from the government out to the dealers.  It had a lot to do with clerical errors.  So now the Dealers sold their inventory, but do not have cash to buy replacements..  That is cannibalizing the market place.

Than ‘the experts’ started to realize, as some had warned previously, that all they did was push people who might be buying cars soon, into people who bought cars right now.  So now they have diminished the number of  buyers, that would have come, in future months  Cannibalizing their market place again.

So let’s recap.  They accelerated their buyers through the pipeline, at the expense of future business, and they have empty lots with no cars to sell to the few people that are still looking to buy.  Call me crazy, but that does not seem the best way to run a business.  Unless you are looking to run that business into the ground.

So what does this have to do with Real Estate?  While I am sure many of you have had the same thoughts, lets put it into words.  The market collapsed, Bank lending froze, and the markets teetered on the brink of Collapse.   The government had to act, is the concensus I am hearing, and find credence in.  Not just for the Business’s directly affected, not just for the USofA, but for the entire Global Economy.  Scary stuff, and maybe it is better to act on the side of caution and throw some cash at the problem.

But they just couldn’t stop there, could they.  And while everybody loves getting something for free, be careful what you wish for (see cash for clunkers above.)

They came up with the bright idea to accelerate the home buyers pipeline with a nifty 10% First Time Home-Buyers Tax Credit (max limit $8,000.)  YIPPIE, now people who could not previously afford to buy a home, CAN.  WOOHOOO

But wait a minute.  Didn’t we first get into this mess by lowering standards and giving loans to people who otherwise could not afford to buy that home?  Why would we do the same thing that caused the problem in order to fix the problem?  And now they want to extend & expand the program instead of letting it die.  

I wish that was all there was to it,  but it is not.   There are far more things afoot in the market place right now.

The inventory level of homes for sale has been declining for about a year, 20% in Hudson, Florida.  That’s a good sign right?  And the number of properties under contract has increased dramatically.  That’s a good thing too, right?  Solid indicators that we are bottoming out. 

NO IT IS NOT.  In normal times it is, but we are in anything but normal times.  The decline in inventory levels is just the quiet before the storm.  The number of solds can be attributed to, in part, to the increase of buyers spurred on by the FTHBTC of 10%.  The large number of homes under contrast, usually a dependable housing market indicator, is so large because of how long it takes to negotiate a Short Sale/ Pre-Foreclosure to closing.   The numbers of distressed properties under contract, in my market are typically 2, 3 or 4 times greater than the number of distressed properties that actually sell every month.

Wish that was all there was to it, BUT……

Rumors are that the banks are intentional keeping inventory off the market to artificially inflate prices.  The darkest of speculations puts the number at ~80%.  8 out of 10 homes in a banks portfolio may be sitting vacant and waiting to come on the market.   There are a lot of distressed properties on the market, at least here in the Tampa Area where unemployment is around 12% in some areas.  And to consider that only 20% of the banks inventory is actually on the market makes me shudder.

On top of that, Now we are beginning to see Strategic Defaults.  This is people who have made the conscious decision to walk away from a mortgage because their house is so far under water they can rebuild their credit rating long before the value of the home returns to the original purchase price.  And now some are beginning to speculate that 2010 will be remembered as the Year of Strategic Defaults, the likes of which we have yet to see.

So if you are buying a home because you think we are at the bottom, or because of the 10% FTHBTC, you might want to think twice, before you find yourself in the positions of the people now considering/doing strategic defaults.

EDIT 9/25:  What I neglected to mention, was my county - Pasco Florida and, if I am not mistaken St Petersburg as well -arranged it so the Tax Credit can be used for down payment to help spur on our crippled real estate market.  I know it is true in Pasco, St Pete is near, but out of my area, so I do not track it as closely.