Mortgage News

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. 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."

This quote was added: "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 slow recovery we are expecting. When incentives end, there will be a drop in demand. 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. Meanwhile, there is still time to purchase a home and take advantage of the tax credit—but time is running short...