Stimulus. . .Coming to an end. The experts are saying, the shrinkage of government will represent a major drag upon the economy during the next few years. This follows a period in which we experienced major economic stimulus from tax rebates, massive grants and the spending associated with two wars. State and local governments are facing huge deficits and one-by-one austerity plans are cutting jobs and programs or raising taxes. However, these deficits pale when compared to the shortfall the Federal government is facing. The President’s proposed budget cuts and revenue enhancements run the gamut from small businesses to housing counseling programs. And that is just the first salvo. Congress has lined up hundreds of bills, many of which propose to cut much further. 

Let’s advance a couple of points here. First, with the economy entering a stronger recovery phase necessary to reduce unemployment, to keep that momentum going the economy must overcome a second significant factor besides housing — the shrinkage of government. However, there is no choice. Lack of action would result in higher rates that would constrict the recovery even further. Think of the situation as the government getting out of the way so that the economy can expand after the government has helped business up to their feet during the fiscal crisis we experienced. Second, as severe as these cuts sound, they don’t even represent a significant dent in the long-term deficit picture. That is because the vast majority of the budget can’t be changed by simply cutting spending or raising a few taxes. Social Security, Medicare, interest on the debt and non-war defense spending, including homeland security, take up too large a percentage of the budget for the other cuts to be effective. That means the government must make some really hard choices, including raising revenue, in order to solve the problem. In other words, an immediate cut in spending is a necessary first step, but it is only one step. The government faces a very important and difficult balancing act comprised of cutting and preserving the recovery.

Now is a great time to buy according to Michael Corbett, author of Before You Buy: The Homebuyer’s Handbook for Today’s Market. "I’m pretty comfortable saying that five years from now, people are going to be saying, ‘Damn, if I had just bought in 2011,’ " said Corbett, who is also host of the "Mansions & Millionaires" segment on the syndicated TV show "Extra." "Prices are bumping along the bottom and rates are really low," he said. "When you have those two together, you have the perfect buying opportunity." Housing prices may not have hit rock bottom, Corbett acknowledged. But he thinks that people who wait to find the market’s bottom are likely to miss out on the current low rates. And rates can be every bit as important to the cost of a deal as price. You might think you can snag a great deal by lying in wait — hoping that the owner of a $500,000 listing will get desperate enough to accept $450,000, for example. But if rates rise 1% during the time you wait, you’ll end up shooting yourself in the foot. Assuming you finance $400,000 of the purchase price of that home, the 1-percentage-point difference between a 5% and a 6% loan will cost you more than $90,000 over the life of a 30-year loan. "It’s hard to tell where the bottom of a market is, until prices start going up," said Dianne Patton, a consumer real estate specialist with Coldwell Banker Real Estate. "But the stars are aligned for buyers right now." Source: LATimes.com

All-cash transactions accounted for 28 percent of home sales last year –double the rate of October 2008 — reports the National Association of Realtors. Cash deals are gaining in popularity because buyers believe prices are at or near the bottom. In addition, new home sales may bounce back this spring, and the rebound could last through at least 2012, predict market watchers. The Mortgage Bankers Association forecasts a 10 percent jump in volume; while Fannie Mae and the National Association of Home Builders project gains of 18 percent and 20 percent, respectively. The groups are optimistic despite tighter underwriting, the absence of a home buyer tax credit and stiff competition from bargain-priced foreclosure properties Sources: WSJ.com and BusinessWeek.com

 ~Trisha Bush, Principal Broker

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