Foreclosure home prior to clean-out...

If you 'find' a home on Nov. 29, you have only one day to close!

One bill that just passed in the House is an extension of the $8,000 first-time homebuyers' tax credit for military families.  The bill was passed 416-to-0!  The bill gives those who are serving overseas in 2009, and unable to look for a home, an additional year to take advantage of the credit. 

The Other Side of the Argument

Now, I have heard much criticism previously from Tycoon readers about why this program should NOT be extended.  Some say it was real estate -- including realtors, mortgage officers, builders and/or banks -- that got us into this economic mess, so why should we continue to bail the industry out? 


Some say we should just allow the market to freefall until it reaches a level where the supply-and-demand laws dictate that new buyers will emerge.  Others have said they are tired of seeing everyone except themselves get bailed out with one stimulus program or another.

All three of these arguments have validity, and I am well-aware of the anger that still festers inside American taxpayers over the housing bubble and subprime-mortgage fiasco.  

Several of our readers have previously given the thumbs-down to the first-time buyer's tax credit.



However, as we approach 2010, the problem is no longer the bubble bursting, nor the subprime mortgages.  Most of the new foreclosures that are now hitting the market are "prime loans," which means your normal 30-year, fixed-rate conventional loans. 

And the No. 1 reason for all of these foreclosures is our rising unemployment rate.

So, even if we all agree that the housing bubble and subprime meltdown largely contributed to the current economy and job losses, it's time to stop dwelling on the past because, at this point, we really need to figure out what we are going to do to improve the future.

A Simple Request

To that end, I am calling on Nancy Pelosi (yes, I'm sure she reads my articles faithfully) and the rest of Congress to extend the First-Time Buyer Tax Credit for another 12 months. 

And I am further asking that the program be broadened to allow investors and second-home purchasers to participate as well. 



The recent proposal by Sen. Johnny Isakson (D-Ga.) to increase the tax credit to $15,000 is seen by some as excessive, and it probably has little chance of passing. 

However his idea to extend the credit to investors and second-home buyers makes a lot of sense for the following reasons:


A Tax Credit That Creates Work ... in a Good Way!

So far this year, there have been over 360,000 homebuyers who took advantage of the tax credit.  Adding second homes and investor purchases to the mix could double or triple that number next year.

If our most devastating economic problem right now is the 9.8% unemployment rate, what better way to reduce that number -- or, at least, keep it from rising any further -- than to stimulate housing?


In addition, when homes are purchased, money flows into retail outlets like Home Depot (Symbol: HD), Lowe's (Symbol: LOW) and stores that provide furniture and accessories for their newly purchased home.  This keeps people employed, or may even lead to re-hiring in those establishments.

On new-construction homes, all of these same occupations benefit. Additionally, income flows to builders, their staffs, and all of the construction crews who provide the roofing, plumbing, carpentry, painting, flooring, etc. to build a new home. 

Many of these construction workers have spent the last two to three years in various stages of unemployment or under-employment.



While people get angry at the real estate industry for the current economic conditions, they need to remember that -- from post-9/11 America to 2006 -- it was the real estate industry that created the large numbers of jobs that helped to grow the economy.

Are There Additional 'Other Shoes' Left to Drop?

There are many economists who are now even suggesting that real estate could have a second leg down. 

Increasing numbers of foreclosures still in the pipelines, and upside-down sellers turning the keys back over to the bank, could be a one-two punch that would perpetuate the slide in home values. 

A Catch-22 is created as higher numbers of foreclosures serve to lower existing home values, which then forces more people into foreclosure when they can't sell.

With continued weakness in the economy, mortgage rates have settled nicely into the upper-4% range for both the 15- and 30-year fixed-rate mortgages.