Return to Capitalism

On April 16, 2010, in Uncategorized, by David Monsour

The title might be a bit extreme, and all political viewpoints aside, I feel like we are finally trending in the right direction.  As of the end of March the government has pulled out of government backed securities and put the mortgage load on the shoulders of private investors.  This has somewhat revived the free market system in terms of mortgage backed securities.  You see when investors purchase mortgages there is a level of risk involved (foreclosures or short sales) so the return has to be worth the risk associated with the purchase.  The current economic system is such that the level of risk for these investors is higher than it might typically be in a more “normal” economy. 

While many might see rising interest rates a problem, it’s a natural progression.  Higher interest rates mean that people that were just hanging around might make moves to enter the real estate market so that they don’t miss the favorable interest rates completely.  Beyond real estate, savings accounts and CD interest rates will increase creating incentive to save or purchase CD’s.  I think we’ve all heard Newtons law that every action has an equal and opposite reaction, well you can see where this applies to finance. 

The end of the first time buyer tax credit will also promote normalcy in the market.  The real estate market will finally have a taste of what it’s like to operate without uneeded incentives.  There are plenty of reasons to buy vs. rent.  In fact there are enough reasons that offering 8000.00 dollars on top of the benefits seems a bit ridiculous.  Without the credit people will operate at a normal pace, and spread the sales over larger time periods.  This should give us a better overall prospective of how the market is actually doing. 

I’m interested to see what the third and forth quarter sales figures look devoid of tax credits and government control of interest rates.  Could it be that all of these incentives were nothing more than a huge waste of tax dollars…I mean it only cost ~40,000 per 8,000 dollar tax credit.  Sounds like responsible spending to me.


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