A Housing Market Solution?

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Previous attempts at government intervention/stimulus in the housing market did not achieve their intended goals.  Sure, more folks bought homes, but your last name needn’t be Case or Shiller to know that we’re still in a national housing slump.  What to do, what to do.

There are many that say, quite adamantly I might add, that the government should do nothing further to stimulate the residential real estate market.  They argue that only time and collective pain will heal housing wounds.  There’s an equally fervent crowd that believes steadfastly that the overall economy is inextricably linked to housing, and that something needs to be done.  Regardless of which camp you call your own, it’s always refreshing to hear good ideas.  The one below, courtesy of Don Hays, quoting investment strategist Ed Yardeni:

If we are right, the good feelings will not be reflected in the stock market for several weeks as the Super Committee and the Administration start getting a viable plan in place for Tax and Entitlement Reform. This reform has to please both sides—Republicans and Democrats. I’m sure it will not perfectly please the extremes of both parties, but the best plan for America has to find that middle ground. We like the trends that are evolving, but admittedly with all the media jabberwocky, it is hard to see the trends. I do expect a major housing priority to be established. I really like Ed Yardeni’s idea, and suspect something along those lines will occur. Ed included this plan in a report from two weeks ago, and let me repeat it here for those of you that haven’t seen it.

(1) The federal government should provide a $20,000 matching subsidy toward a down payment on a house to any homebuyer who puts up at least the same amount and is approved for a mortgage loan. The program would be capped at two million existing single-family homes. So the cost of the program would be $40 billion. The purchased property would have to be the primary residence of the buyer.

(2) This program could be paid for by slashing the corporate tax rate on repatriated foreign earnings from 35% to 10%. We estimate that doing so could easily raise the $40 billion necessary to finance the program. Moody’s research recently estimated that at least half of US companies’ record $1,240 billion in cash balances is held overseas. It’s over there and not here because of the large repatriation tax. In recent conversations with top executives of several major US technology companies with cash overseas, Carl was assured that lowering that tax to 10% would bring most of the money to the US.

(3) Rental income would be tax free for 10 years for homebuyers who purchase existing single-family houses as rental properties. They would not be eligible for the down payment subsidy. The 10-year tax-free status of the rental income would be transferable to new owners during that period. The number of rental units under the program would be capped at one million.

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