The Governments Response to the Housing Crises
Posted: Tuesday, August 19, 2008
by David Cowley
dfc investment team
With the foreclosure rate in the housing market at an all time high, real estate investors are having to maintain a very watchful eye on there bottom line. The practice of purchasing a home, making minor repairs and then selling it for a quick profit is gone. For the real estate investor that is in the business for the long haul, it is the perfect time to increase there holdings and yet the government is trying to make it impossible.
The practice of creating a sub-prime mortgage was just another way for the lenders to say, we know you do not qualify for a home loan now but perhaps you may in the future and in the mean time our share holders will love our bottom line. Since the housing market was increasing in value at such a rapid rate at that time, the lenders could foreclose on property and then resell it at even a higher rate than they did the first time. Great for our share holders, bad for our customers (Let the Buyer Beware).
Now that tens of thousands of homes have been foreclosed on, the price of homes are 10, 20 and even 30 percent below that they were just a few years ago. Lending institutions are now stuck with properties that they cannot sell. These lending institutions are not in the business of owning, managing, or renting real property. They are in the business of lending money.
It looks as if our government law makers are just trying to pass new laws for the sake of appearances or to show concern for the current housing crises and not to actually help or solve the problem. I cannot believe that anyone that has any knowledge of investing in the housing market would consider any of the proposed laws to be of any benefit, for example:
One of the proposed laws is to not allow anyone to have more than 10 mortgages. How is stopping someone who has a proven history of successfully managing real estate investments from purchasing new property? How would this law help stimulate the purchases of foreclosed on properties?
The current law for selling a home you have lived in for at least 2 years in the last 5 years is no tax on the profit of $250,000 for a single person and $500,000 for a couple. Obama wants to have a 28 percent tax on profit from all home sales. If you plan to downsize your home after you retire and use that profit to help finance your retirement you could now loose 28 percent. This proposal will adversely effect the elderly who are counting on the profit from the sale of there home as part of their retirement income and as an investor it makes me want to revaluate any potential new real estate investment.
There is a proposal to have new taxes on homes that are more than 2,400 square feet. Let's see now, I have a 5 bedroom home I want to sell and if you add new taxes on the property it will be easer to sell, right?
It seems that ever time the economy gets into trouble; the governments' knee jerk reaction is to put the blame on one of the minorities. Today it is the business people that invest in real estate. Our government has no business in the business mans pocket. Leave the free market place alone, it will take care of itself and look to your own house. Our government already has a proven history of not being able to manage money responsibility. If the government needs to address a problem, how about taking a look at the deficit or social security?
David Cowley has created numerous articles on real estate investing. He has also created a Web Site dedicated to real estate investing. Visit http://www.rgvre-team.com
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Top-level comments on this article: (4 total)
I just wrote to a factual incident concerning Foreclosures. The real facts in my opinion are while people may buy cheap who can rent or buy except those that have? What that equates to is a maJOR problem, pure and simple. While they have taken care of the investor / speculator / banks, etc they have left OUT average Americans. No more American dream and in the long run it hurts evryone. Good information.
I completely agree with you. I was very surprised to read that Obama wants to tax the profits from the sale of real estate. This is very unwise for the reasons you pointed out.Where did you learn of this tax Obama wants to levy?I was reading an article that listed all of the canadates future plans for different subjects such a tax hikes, real estate taxes, military budget and so on.
I agree with your assessment. The only think in the way of the housing market balancing is the banks. They want to sell their houses, but do not want to lend money. That, of course, is the opposite of their business model. Once banks sell their properties and start lending again, the market will move toward balance.The free market place will take care of its own as long as the government keeps its hands off.
The government will never keep it hands off. Fannie Mae and Freddie Mac are government entities pretending to be private sector businesses. Let the executive keep the profits, but have the taxpayers pay for losses? That is not the way a private business is treated. That is exactly the way a federal agency is treated. The real estate market will come back. It always does.
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