Shocker! Car sales drop when Cash for Clunkers ended

Duh.  Does this surprise anyone?  But what, you may ask, does this have to do with real estate?

We’ve seen an uptick in home sales since the $8,000 tax credit for 1st time home buyers was introduced.  We affectionately call that the Bucks for Buyers program.  But unless it gets extended, the Bucks for Buyers program is scheduled to end December 31.

Does this mean that home sales will drop too?  No one knows.  But before you buy the housing recovery hook, line and sinker, it certainly is something to think about.

So what’s the lesson?

We certainly understand why people run to Uncle Sam when the economy’s broken, because after all, somebody should do something, right?  We like it better when the somebody who goes to fix the problem are capitalistic entrepreneurs because they tend to find permanent solutions.  Why?  Because they fix problems to sell solutions by starting  a business , or in accounting terms, a “going concern”.  In other words, their solution only rewards them if it can operate for an extended period of time.  Obviously, Cash for Clunker or Bucks for Buyers aren’t “going concerns”.  They’re just band-aids.

So when we’re watching the market and trying to figure out when genuine sustainable recovery is kicking in – and bringing with it bona fide sales (not those goosed by temporary subsidies) and the resulting profits, jobs and salary increases necessary to increase demand for both residential and commercial real estate – we can’t be sure what we’re seeing. Though we’re sure Uncle Sam means well, he sometimes complicates a simple process.

It will be interesting to see if the “strength” of housing sales lasts past these temporary tax breaks.  And if Congress decides to extend them, we’ll have to wait even longer.  But until we see real job growth (not jobs “saved”, but net increases) and strong wages, any serious macro appreciation of real estate is likely to be long and slow.

So buy smart and make sure your properties carry themselves on cash flow from the first day.  And look for ways to “force equity” by upgrading the property to make the property worth more to renters and buyers.  In other words, back to the basics of building wealth with real estate.

Good luck!

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