As soon as the April 30th tax rebate deadline passed for new sales contracts, so did the brief spike in housing sales. Subsequently, May and June have seen a decline in pending sales.
Other than homes under $100,000, the only other sector of the housing market that continues to show strength is rentals which, in effect, is blood money from distressed and displaced homeowners. They’ve got to live somewhere!
Outside of those two areas, the real estate market has become eerily quiet. Without the tax rebate, buyers are sitting on the sidelines and many sellers have become increasingly resigned to being “underwater” to the point that many of them are now opting for foreclosure versus a short sale. Sort of an oxymoron, don‘t you think, given that short sales can take several months to process, effectively becoming a long sale? People just want to get on with their lives. No one is comfortable living with a foreclosure hanging over your head and you can’t build a retirement nest egg on negative equity.
Essentially, the housing market has demonstrated that it is unable to stand on its own feet without a stimulus. The tax credit needs to be extended to Dec. 31, 2012 which coincides with the expiration of the IRS exemption from capital gains tax liability on unearned income or debt forgiveness. This exemption was primarily intended for those homeowners who chose to short sale.
Right now there are close to 10 million residential mortgages 30 days or more past due in America. In the Phoenix metro area alone, it is estimated that another 50,000 homes will be lost to foreclosure before the end of the year! Most of these homeowners are “underwater” meaning they owe more on the loan than the house is worth. In Arizona, for example, most people who are behind on their mortgages are 30-50 percent underwater. People have come to realize that they may pass away before their homes are ever worth as much as their mortgage.
Banks must refinance those homeowners who are underwater at fair market value. These loans must be fixed rate mortgages for 30-year terms. To date, what we hear is that there is no way banks will forgive any principal balance. What do banks believe that a short sale is? It includes the reduction of the principal balance owed on the property in order to induce a buyer to make an offer. What’s so wrong with refinancing those families who already live in the house now at fair market value and stop all this insanity? We’re all running around like mice in a maze looking for a place to sleep. Banks have played the moral and ethical obligation card one too many times. Reality trumps ideology.
I don’t care how many times you offer to modify a homeowner’s monthly payment. If you don’t have a plan for keeping families in their homes long-term, it doesn’t matter!
OK, how much is this going to cost. By my estimates, the tax credit is going to cost us about $70 billion and the underwater refinance approximately $1 trillion. We have already spent or have committed to spending over $2.5 trillion to fix our housing problem and haven’t yet succeeded.
Extending the real estate tax credit, coupled with the refinancing of underwater loans, will go a long way toward taking the word crisis out of housing.
Jon Beydler is a 32-year Valley resident and the former mayor of Fountain Hills who now lives in Chandler