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Wednesday, June 23, 2010

Economic Education

So what happens when the government tries to stimulate an economy by throwing money at it, and raising taxes to come up with the money they are throwing?

You get the US housing market.

So the Administration, in their normal move, had decided that the "Fake It Til You Make It" policy was the best way to do things -- they offered stimulus money for people to build new homes earlier this year (maybe it was late last year, I recall off hand).

This of course inflated the number of new homes being built .... it allowed people who normally would never have qualified to get a loan to have a brand new home made the chance to do so (this is important for later, btw). And it got several unioned construction workers back into jobs during what would have been a sluggish time.

Well the first bowel-movement has hit the fan:

New Home sells for May
Down 32.7%

That is the largest drop in HISTORY since the records started being kept in 1963 .... WOW .... I'm wondering if this is going to get the same press coverage as the first round when they tried to say that it was all Bush's fault?

But wait it gets better .... remember that bit that I said would be important?

Now there are forecasts that the people who without the 'rebate' couldn't afford to buy these homes (remember they have to buy the property, and then erect the house upon it in most cases) .... the feeling is that the US economy is going to see another spike in housing foreclosures as these people find that they really can't afford to make the payments without the governments help.

They say the next round of foreclosures are going to be conventional loans - the ones with the "same" payment every month for the full term of the loan - as people shy'd away from the variable rate loans hoping to avoid issues. This will be the second bowel-movement, btw.

What they don't tell you is - and this isn't the banks faults, it isn't their end of the deal - that your mortgage payments CAN still increase as your property tax goes up, or your housing insurance payments change, or your property gets an assessment from your city (when they do sewer work, put in curbs, etc). Trust me on this one, we've owned two homes, both have done the same thing.

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Mortgage rate 4.75% for fixed 30-yr rate
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