Costa Mesa – Tax Incentives Lead The Way

September 22, 2009

Tax Incentives Lead The Way

The government is spending tens of billions to incent consumers to spend their money purchasing homes, cars and even energy-efficient improvements to their houses. Certainly we are seeing the results of these programs. Last month the "cash for clunkers" program contributed to a 2.7% gain in retail sales. Existing and new home sales have also been strong for several months now. However, there is a debate as to the long-term efficacy of these programs. Witness these conflicting quotes from a recent CNN/Money article: "Where the recovery package has seen real bang for its buck is in the use-it-or-lose-it incentives made available to consumers," said Bernard Baumohl, chief global economist at the Economic Outlook Group. "It’s one of the few stimulating programs that has been very successful, because consumers want to take advantage of the deal before they lose it."

The same article added this quote: "I’m troubled by these programs to the extent that they mostly just pull purchases forward that consumers would have made anyway down the road," said Dean Baker, co-director of the Center for Economic and Policy Research. "Some bought items that they wouldn’t have otherwise, but just moving up purchases doesn’t help us get out of the downturn." There is no doubt that the results are encouraging but will these results help us move out of the recession? The answer we believe is yes. However, these programs will contribute to the "stop and start" recovery we are expecting to occur. When incentives end, there will be a noticeable drop in demand. We must understand the fact that the government can’t keep up these incentives forever. In the long run, a sustainable recovery is all about a building of confidence and the incentives should help us do exactly that.

The Markets. Rates fell slightly again in the past week. Freddie Mac announced that for the week ending September 17, 30-year fixed rates averaged 5.04%, down slightly from 5.07% the week before. The average for 15-year fixed fell to 4.47%. Adjustables were mixed with the average for one-year adjustables falling to 4.58% and five-year adjustables remaining at 4.51%. A year ago 30-year fixed rates were at 5.58%. “Rates for fixed-rate home loans eased for the third consecutive week and remained at 3-month lows,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Rates for 30-year fixed-rate loans have averaged just above 5 percent through mid-September, which is roughly a percentage point below last year’s average and suggests that 2009 may reach a record annual low since the survey began in 1971. Low rates are aiding new home construction. Housing starts for single family homes have increased consecutively over the five past months ending in July, although starts eased slightly in August. Moreover, homebuilder confidence improved for the third straight month in September, with all four regions showing positive gains, according to the National Association of Home Builder’s Housing Market Index.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Current Indices For Adjustable Rate Mortgages
Updated September 18, 2009

Best Regards,

Kurt Galitski

The Kurt Real Estate Group

Weichman Realtors

877-957-6677