I received an email message from a Realtor today, who was complaining about the Federal stimulus package. His position was that the Senate bill was better because it gave twice as large tax credit to every home buyer (not just first timers). I thought about this for a while, and decided that it just doesn't add up.

It makes sense that Realtors want the tax rebate for EVERYONE on EVERY home purchase. Realtors make money when someone SELLS a house AND when someone BUYS a house, so by only encouraging first-time owners, they'll only get (at most) half as much new traffic. It sounds like a good deal for first-time buyers, they get to take advantage of the tax rebate and they should come out ahead.

But does this "stimulus" actually work out well for people who are house-swapping? Let's do the math.

Conveniently, $15,000 is exactly the 6% commission on a $250,000 home. So anyone with a $250,000 home to sell (they lose $15,000) will get their Realtor commission back from the government if they buy another $250,000 home.

Sounds like break-even for those house-swappers, yes?

But it isn't.

For everyone (practically all of us) in diminishing house value markets, there's another (BIG!) problem to consider. Someone who had paid $350,000 (with 20% down and 80% financing) for a home that is now worth only $250,000 when they try to sell it, simply can't afford to buy a $250,000 home. Why? Because they will owe $30,000 on their old mortgage and will need an additional $50,000 to make a 20% downpayment on the other home they want to buy. PLUS they have to pay the Realtor $15,000 on the sale of their old home. Basically, with a 30% home price downfall, since they have NO equity in the home they want to sell, this house-swapper MUST HAVE $95,000 CASH ON HAND to make the transaction. Then, around a year or so later, they'll get (only a mere) $15,000 back as a tax credit.

Pay $95,000 to get $15,000 back? Whoops!

That does NOT sound like a good deal.

ESPECIALLY when you consider that's $95,000 CASH that the house-swapper COULD have spent at Home Depot or Lowes for new siding or windows or adding a deck or building a back room addition and so on, improving their home and their neighborhood, if they just kept their old house. But now they don't have that $95,000 to spend because they they gave it to Realtors and banks in order to get out of their old mortgage and get into a new one.

So yes, this house-swapping stimulus plan IS a good idea for the BANKS, because it gives them some of their capitol back (that they lost when the houses were depreciated in value and foreclosed), so they can lend it out in more bad mortgages that their new (or even some of the same) customers can't afford.

But this "stimulus" is NOT a good idea for someone who already has a house and no reason other than a tax rebate to buy a different house. Heck, it's not even a good idea for someone who needs to move. They should keep their old house, rent it, and use the rental income to rent someone else's house someplace else.

Lo and behold, all these "stimulus packages" do is give more money to the BANKS, and this is another example of the big rip-off that the banks have been playing on us for the last few decades.

Like the bank rip-off that encouraged home buyers to take out adjustable rate mortgages that would eventually exceed their abilities to pay, and then they lost their jobs (AND their homes depreciated), so they couldn't refinance at lower rates, so then they lost their homes to foreclosure.

Or even worse, like the bank rip-off that encouraged people to take out interest-only mortgages, gambling that their house prices would go up but they instead they went down, so now they're under-water big time, etc.

And also like the bank rip-off that encouraged people to buy items that they couldn't afford, using credit cards with interest rates that climbed up above 25% ensuring that the enticing "low monthly payment" would keep the cardholder paying for those Home Depot and Lowes purchases for 30 or more years. And so on.

NOT a good thing. Except if you're a banker.

Keep in mind that the stimulus package is a $15,000 tax CREDIT. Not $15,000 toward buying a house. Just a REBATE of $15,000 of your PAID FEDERAL TAXES. Let's think about this.

In order to have PAID $15,000 in Federal taxes, a married couple will have to show AFTER DEDUCTIONS income of more than $90,000. This basically means that FULL advantage of the $15,000 tax CREDIT only goes to households with incomes in excess of around $110,000 (assuming around $20,000 in deductions). These people are the ones already bringing home the bacon, and they should probably have SOME money set aside that they can use to go to the Home Depot and buy things for their new house -- if not, then they probably can't afford to buy one, even if the bank and government will qualify them.

Yes, people with lower incomes would be able to take advantage of the tax CREDIT, but ONLY up to the amount of tax they actually pay. Remember, it's not a $15,000 HANDOUT. It's just a tax CREDIT. A married couple with $75,000 in income, and $20,000 in deductions would have an after deductions income of $55,000 and their tax assessment would be $7,500. $7,500 is ALL they'll get back, and only AFTER they file their taxes for the year they purchase a home. Like 6 or 12 months after they buy it. I can tell you, they're going to need that lawn mower well before then. Hmmm.

Now $7,500 is the lower amount that's in the House bill. Basically the tax credit seems to have been calculated so that people in the low to low-mid income levels can take full advantage of it. But it's another scam, not only because a huge percentage of those people can't afford to buy houses, but also because the people making more money than $90,000 a year probably will qualify to get the $7,500 too. So you can bet that the people making $500,000 a year will make sure their accountant applies for their $7,500 rebate after they buy their $6,000,000 house.

So why shouldn't everyone buying a house get a $7,500 (or $15,000) tax credit, even if they're stupid enough to pay an extra $95,000 to get it? Well, if people swapping houses are paying less taxes, then where is the government going to get the money they need to provide for roads and schools and health care and assistance to the unemployed and homeland security and all the other things that are supposed to be done with our tax dollars for ALL of the citizens, including those who don't plan to buy or sell a house this year? The government's money has to come from someplace, and with businesses closing down and reporting losses, those tax dollars sure aren't going to be rolling in from corporate profits for a while.

The answer to our bleak financial times? House-swapping, no.

INVESTING in real estate, perhaps yes. That's what the government (and the Realtors, banks, Home Depot and Lowes) should be encouraging. People with $95,000 cash who already own a home should go to foreclosure auctions, see if they can pick up something for around $75,000, pay cash, fix it up with the other $20,000, and rent it out. Then they'll have a nice income they can use to start to pay off their own under-water mortgage. And they'll be improving a neighborhod by removing a foreclosure sign and filling an empty house. THAT'S the best deal for the American homeowner.

I'm hoping Suzie Orman would approve. If you agree, print this out, send it to your Senator and Congressman, along with a $2 calculator, and tell 'em to do the math.

Author's Website: http://www.notablesoftware.com

Author's Bio: Rebecca Mercuri has been in the forefront of the voting integrity movement since 1989. She provides expert witness services for elections and other forensic computing matters.

www.opednews.com/articles/Homebuyer-Stimulus-Plan--by-Rebecca-Mercuri-090210-821.html