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July 28th, 2010 3:48 PM by David W. Welch
I saw the title of an article today that said "What will a trillion dollars buy?" I did not read it, but I am sure it has something to do with the budget deficit or corporate profits or possibly the amount of money The Fed has pumped into mortgage backed securities. The other day, I started thinking about just these three things and it struck me that for less than a trillion dollars The Fed could have purchased all 3.99 million homes for sale right now. At an average price of around $200,000 four million homes would be $800 billion. Budget a couple hundred million dollars for upkeep and maintenance, and bam one trillion dollars.
Back awhile ago I wrote a blog titled "A Crazy Idea", and a year and a half later it is still relevant. So far about two trillion has been spent on bailouts, stimulus, and the purchase of mortgage backed securities. Today, interest rates are lower, and there are fewer homes for sale, but is the housing market any stronger than it was two years ago. Here in Orlando sales are much more brisk, but that has more to do with the freefall we saw in prices from 2008 to 2010. When I wrote that original blog piece our median sales price was around $148,000, and last month it was $116,000. What good is the liquidity in the financial markets if loans are not being made. What good is the stimulus if unemployment is still pushing double digits.
Yes, it's a crazy idea, and no I don't really expect anyone to take it completely seriously. However, if The Fed went into markets and absorbed the excess inventory in the middle third, think of the direct impact on local real estate markets and economies. The purchases release all kinds of pent up demand; builders would once again have to start building; prices would be stabilized; states and local governments would see their tax bases improve dramatically. This type of intervention directly impacts individuals and local economies instead of helping to support bank balance sheets.
David Welch Real Estate Optimist, Orlando Real Estate