My Quick Read On Stimulus

There's a lot there. I've had my eye on just one part of it, the $8k first time buyer credit. First-time Buyers are a growing proportion of home buyers because of incredible affordability. I think that they're almost up to 50% and probably will be there with this credit this year. 2007 saw 5,652,000 homes sold. I think we'll easily do that as we clear the foreclosures and other low cost properties. The credit just makes it too sensible. So, this suggests to me that we're going to give 2.8MM households--households that were likely to be cash poor and house rich for a few months---$8,000. Remember when you bought your first home? How much stuff did you (or your spouse) need to buy or want to buy? How stuff did you wait on because you blew your wad on all those closing costs and down payment? To my mind, most of those folks are going to blow every penny of that $8k within 12 months. That's probably going to be about $25 billion of additional stimulus (i.e. over and above what the purchase itself will stimulate and over and above spending that was going to happen as soon as folks felt compelled to buy). The total net stimulus (not just cost to the tax payers) is probably going to be close to $60Bill, plus it ought to shrink real estate inventory overhang and improve liquidity. I have no idea how many folks are paying two mortgages and who will go to paying one thanks to a newly motivated new home buyer. I'll bet that'll stimulate things a little bit too. Champagne sales ought to improve from that alone... All in all, this part of the package ought to get pretty good bang for the buck. Add on the refi's and we're starting to talk about some real money. Mark

The psycology has changed and most of that money will be saved. Its why the multiplier is less than 1

The psycology has changed and most of that money will be saved. Its why the multiplier is less than 1

I seriously doubt that this segment will save. This is one time that people blow money like drunken sailors. Even if they pass on the new riding mower, there's other stuff that the spouse is going to demand. Period. No debate.

As I said, while the savings rate is up a bit, it's not crazy and there's no real evidence that the American consumer has "turned Japanese". If you can procure such, I'm all eyes. I don't believe you can. When we're not scared to death, we spend. We'll spend a not insignificant sum.

And, btw, if not, that money will find its way into the stock market directly or indirectly. Either way, it's Bullish, near term.

M

Even if they pass on the new riding mower, there's other stuff that the spouse is going to demand. Period. No debate.

I resemble that remark!

That clinches it for me. Now that's great analysis! Seriously!

Thanks Mark,

Jim

Unfortunately, when our consumers spend, the money is going to countries around the world. Other than sales taxes, there is little benefit to our economy. This brings us to the root of the problem which is.... JOBS. As a consumer economy we will always be generating debt.

That $8000 is ONLY for FIRST TIME buyers. IOW if you own a house you don't qualify. Next hurdle....not many 1st time buyers have 20% down saved in cash to buy the house which most banks will require now. If you have to buy the house before becoming elibgible for the credit.....that could be a big problem. If the credit can be part of your downpayment, that should be a big help to most 1st time buyers .....not sure if it is structured that way.

Edited by pdx5, 12 February 2009 - 06:51 PM.

That $8000 is ONLY for FIRST TIME buyers. IOW if you own a house you don't qualify.

Next hurdle....not many 1st time buyers have 20% down saved in cash to buy the house
which most banks will require now. If you have to buy the house before becoming eligible
for the credit.....that could be a big problem.

If the credit can be part of your downpayment, that should be a big help to most 1st time buyers
.....not sure if it is structured that way.

You don't understand (I think), I'm working from current numbers of ACTUAL first time home buyers last year. The extrapolation is reasonable, don't you think? I doubt that there will be fewer first time home buyers this year vs. last, right? I don't think loan requirements are any harder now.

And, don't forget, there are other down payment assistance programs and there are local incentives too. Many are able to use subordinated city and local loan money like a down payment on rehab/mortgage loan, too. In our district, there's a $6,000 grant for home buyers that may be used as down payment money.

Mark

Essentially reinstated the old tax credit from last year with a bump from $7,500 to $8,000. Wall Street analysts said the homebuyer provision will have a negligible effect on homebuilders' fortunes. "Congress, unambiguously, left the builders out in the cold," said Deutsche Bank analyst Nishu Sood. "It's a pretty big disappointment that they scaled it back."

why not the gov just buy house and give to the ppl? spend less $$$ this way.

Downpayments are not the problem, Vets still can buy for zero down on the GI Bill, millions will use FHA mortgages that require only 2.5% down, and FNMA still allows 5% down purchase money mortgages. What HAS change is stiffer credit analysis on the above loans, and the almost complete destruction of the subprime lending market. In short, if you have a decent stable job and pretty darn good credit and at least 5% for a downpayment, you should have no real problem with approval. We are now back to the days of prudent, responsible, underwriting. The era of "free" markets with little oversight is over, from that came greed, fraud, and coruption, just what you would expect from letting six year olds play without adults around.