Time Is Running Out For An Easy $8,000
The Dynamic Wealth Report
October 16, 2009
by Corey Williams, Editor
Out here in the desert, we’ve got a big problem on our hands. Actually, it’s going
to impact every single community across the country. And it’s going to affect you even if you never set foot in Arizona.
Sorry to go ‘gloom and doom’ right off the bat. But we’ve got a scary
situation on our hands.
You see, the real estate business plays a huge part in our local economy.
Arizona was home to some of the highest home value appreciation rates
during the boom. And some of the biggest declines in the housing bust.
I know more than a few investors who held on too long. Some of the real
estate investors I know had a net worth of as much as $10 million in
real estate holdings back in 2006. Today it’s all gone.
If they’re lucky, they still own the home they live in.
The same scenario played out to a greater or lesser degree in households
and businesses around the world. The destruction of middle class
America’s household wealth started a cycle of fear.
The downward spiral for real estate prices lasted from June of 2006
until April of 2009. It’s no wonder why the housing market finally
started to stabilize.
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In the early part of 2009, President Obama unveiled an $8,000 tax credit
for first time homebuyers as part of the American Recovery and
Reinvestment Act.
Some estimates credit 50% of all real estate sales in the US this year
to the tax credit.
We have a problem. The clock is ticking on the first time homebuyer tax
credit. The $8,000 tax credit is set to expire at the end of November.
In reality, if you haven’t signed a purchase contract already, you’re
probably out of luck.
If you want to take advantage of the program, you must have possession of
the house by the deadline. That’s the only way to get your $8,000
credit. Remember, it takes about 45 days from signing a contract to
closing escrow. You need to have your purchase contract signed…
yesterday!
Let’s face it, the government stimulus programs didn’t create new buyers. There isn’t a secret government lab genetically engineering
well-qualified homebuyers... at least not that I know of.
The tax credit is an incentive to buy now instead of later. We’ve been
borrowing from future sales to boost the market today. I think it was
the right move to stabilize the housing market with a tax credit. I
don’t think the housing market or the economy can survive without the
stimulus.
That’s why it needs to be extended.
Pulling the plug on the home buyer tax credit will have the same effect
the end of Cash for Clunkers had on car sales. Car sales fell by more
than 10% in September, the month after the program ended.
Here’s the scary part. The housing industry has a much wider economic
reach than the car industry has. And a 10% fall (it will probably be
much bigger) in home sales will knock us right off the track to economic
recovery.
If the tax credit isn’t renewed or revamped, nothing will be spared.
Don’t be fooled by the stock market’s amazing rally since March. The
economic recovery is still fragile. We’re just beginning to turn the
corner. And if the housing market goes down again, the stock market will
be right behind it.
The cycle of fear that fueled the mass destruction of wealth in 2008 and
ultimately the credit crisis could repeat itself. If Congress allows the
tax credit to expire on November 30th, the banks will be the biggest losers.
Don’t forget, unemployment and foreclosures are still on the rise. The
only reason banks have been able to sell their foreclosures is because
of this first time home buyers tax credit. If the tax credit goes away,
so does the first time homebuyers.
That means bigger losses for the financials.
The good news is there’s still hope. There are numerous bills
circulating around Washington DC calling for the extension and expansion
of the tax credit. The best one I’ve seen increases the credit to
$15,000. It also raises the income restrictions. And most importantly,
the tax credit will be available to everyone, not just the first time
home buyers.
If this bill passes, it will provide a much needed boost to home values
in price ranges out of the reach of most first time home buyers. And
that will be great for middle class Americans everywhere.
• Harley-Davidson (HOG) was upgraded by RBC
Capital Markets this week. They now have an outperform rating on the
stock. They set a price target of $35 amid news the company is
restructuring.
• F5 Networks (FFIV) was downgraded to 'perform' by
Oppenheimer. The stock is up better than 80% year to date.
• Maxim Group started coverage on China-Biotics (CHBT)
this week with a buy rating. The Chinese probiotics company has been
moving higher on heavy volume recently.
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