Home Buyer Tax Credit

Now that the new home buyer tax credit dissipation is winding down it is time to review the results. The claims are 355,000 homes were purchased that would not have been otherwise purchased. That puts the cost to you and I as the taxpayers at about $43,000 for each supposed house sold above expectations. That is a lot.

We probably sold lots of those 355,000 homes to twenty year old people with three jobs and no college plans to buy $155,000 that is immediately underwater at $183,000 after additional government loans for improvements. See more here.

The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She's paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments.

Emphasis mine.

This loan is almost certain to fail - would you loan a hard working friend that kind of money with those risks? Guess who is holding the bag? The mirror is in the bathroom if you need to clear that up.

As bad as this is we now find the IRS is investigating about 100,000 loans for fraudulent filings for the first time buyers tax credit. It should be interesting to see how this will be clawed back since the FHA let buyers use the credit as the down payment on these homes. Does this mean the government is "nudging" lenders to perform foreclosure avoidance and the IRS to perform foreclosures? Time will tell but it looks bad for the tax payer either way.

Boycott TARP Banks

After all the outrageous behavior of the TARP banks Denninger is calling for a boycott of Bank of America, Citi, Wells Fargo/Wachovia, and JP Morgan/Chase. I am joining him in this call, actually already implicitly doing this. You can see Karl Denninger's rant at the Market Ticker.

I might add GMAC/Ally bank and Capitol One Finance. So look at the back of your credit cards and see who is the sponsoring bank. Move bank accounts to a local credit union. You'll probably be happier anyway.

Global Consensus

I have been thinking a lot about many of the alarmist endeavours that have consumed society and the press over the last several decades. Global warming feels like one of those situations. We hear much about scientific consensus and that concerns me. Oddly, I found the a comment on this article attached to an article on global warming by a commenter simply named "Mike" and have repeated a portion of it here:

Supporting or believing in [global warming] based on "consesus" is unscientific. Consesus told us that Newtonion physics was the final answer and for awile even Einstein was laughed at when he said it wasn't. Consesus told us that eugenics was sound science and the political advantages that it could provide didn't hurt in obtaining that consesus. Consesus told us that frontal lobotomies and recovered memory syndrome were sound science. Consensus and scientifically accepted methods told us that thalymide(and many other unsafe drugs) were safe. In short consensus isn't science. Peer review does not contest the result of a study based on it's findings. It reviews a study to determine if proper methods of measurement,data aquisition and analysis were used. When consensus is cited as a basis for acceptance it's particularly problematic when such consensus doesn't even exist.

Well put Mike.

Killing The Goose

John Mauldin writes another great letter this week. This weeks letter is a little depressing considering Mr. Mauldin is an optimist. Either way a great read. Sign up and read more here. Don't worry its free.

Pent Up Inventory Unleashed in 2010

I almost always enjoy reading Dr. Housing Bubble and his blog focusing on housing and particularly southern California Real Estate. Here is a quote from a recent article titled

"Shadow Inventory Case Study: Inventory in the Shadows Twice as Big as Normal Resale Inventory in Los Angeles and not on the MLS or for Public Viewing. Foreclosures and Distress Properties Clogging the System."

The pent up inventory is getting ready to unleash in 2010. The gigantic bet made by the bankers and Wall Street was that somehow by allowing banks to fudge numbers since the crisis started that housing would find its footing and the market would stabilize. Sweep the collapse under the bailout rug. This perceived grounding was then going to allow banks to unload these properties and avoid realizing institutional ending losses. Yet 21 months into this painful recession and trillions handed out to the banking sector, housing prices are not spiking. The tiny uptick in home prices is a mirage brought on by three major factors. First, the $8,000 tax credit lured additional home buyers into the market. Next banks have held back on the shadow inventory thus artificially lowering the supply of homes on the market. Finally, the U.S. Treasury and Federal Reserve have artificially kept mortgage rates low by buying up some $1.25 trillion in mortgage backed securities. All this and housing prices have barely stabilized in some regions while foreclosures are at record breaking heights.

Read the rest for some interesting investigative coverage.