August 4, 2011 | by David Bediz
Dodging a bullet?

Most of us Realtors aren’t economists; our experience with the markets is about our corner of the real-estate world, and with the personal interactions we have with our sellers and buyers in general. It’s much less about the graphs and charts that financial analysts see in their dreams as they sleep at night. But the recent activity in the financial markets and specifically the debt-limit debate in Congress, have a profound impact on the number of buyers actually in the market and also may affect final prices.

The goings-on of late on Capitol Hill are important for anyone involved in the housing industry —  buyers, sellers, brokers or agents. We have all been concerned in the past couple weeks as this financial game of chicken came to a head, and we’re all breathing a sigh of relief that, while not ideal for anyone, the immediate threat of a national default and its almost certainly negative widespread impact has been averted.

No columnist, reporter or pundit actually knew the full impact that default would have truly had, but all were in agreement that the effect would range somewhere between bad and apocalyptic. The effect on the housing market would almost certainly have had a double-whammy force: one in terms of increased interest rates passed down by the U.S.’s inability to get the lowest interest rates it currently commands with its AAA rating , and the other potentially greater threat in the form of increased caution among buyers too uncertain of the economic future in general to invest in housing.

The latter concern is so great because it is a potential loss of an economic investment that at any point could rival another economic stimulus package, not only in the dollars those buyers would spend in the property purchase itself, but also in the subsequent investment in improvements, renovations and furnishings that follow most home sales. Without the economic confidence that encourages home sales, even at the very low end of the property spectrum, the “food chain” of the real estate market that allows sellers of smaller homes to purchase larger ones, and so forth, comes to a halt and does so just as a market that is floundering nationwide needs all the forward momentum it can get.

We may be kicking the proverbial can down the road by simply increasing the debt limit rather than actually balancing our budget. But because it’s not an improper action (it’s the 79th time we’ve done so since 1960), and because running a deficit is actually a theoretically important thing to do during a period of economic weakness in order to encourage growth and recovery, it may be our only choice at the moment. Our political ideologies vary widely, but most of us agree that the debate over the past couple weeks was as chock-full of political posturing as it was devoid of actual usefulness for the health of the national economy. It in many ways was a solution in search of a problem, and almost caused enormous new problems of its own. Now that that the debate has been resolved, at least for now, we can actually try to move on with our lives and keep selling and buying houses the way we want to.

Let’s hope the next debate on the Hill isn’t one to argue for repeal of the homeowner’s mortgage interest tax deduction, which has been oft discussed (though thankfully never very seriously) and could have an even more significant impact on the market than any other economic struggle we’ve experienced recently.

David Bediz is a principal of the Dwight and David Group at Coldwell Banker Residential Brokerage, Dupont Office. He can be reached at 202-352-8456 or through www.DwightandDavid.com.

 

1 Comment
  • Mortgage interest tax deduction should be on the table. Everyone needs to cut back. Why should poor people subsidize mortgages on $900,000 homes on Capitol Hill?

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