Stimulating Bubbles...again

If I understand the logic---As the housing market goes so goes the economy. Thus, paying people to buy a house they would not buy without a government subsidy is going to help heal the economy because the lack of demand causes house prices to tumble. Artificially stimulating the market by creating buyer's who would not otherwise buy was part of the problem which created the real estate value crisis. Zero down financing, 80/20 loans to avoid PMI, No documentation loans, low interest short term loans... these were the culprits endorsed by the Federal Government to turn maniquins into home buyers in the first half of this decade. Why do we believe turning non-buyers into buyers will work this time?

OK, I'm not an economist but some things just don't make sense. What is happening today with the extension and expansion of the home buyer tax credit is neither good or bad. Some people will be helped in the short term and some people will eventually be hurt--it may be the same person who gets whipsawed by the help and then the hurt when the market has to get along without government intervention. My role in this upside down world  is to help people make a smart decision and begin with a plan to protect from the inevitable painful drop.

1. Be conservative---buy only what you need, not what you want. When the next bubble bursts you may be holding more mortgage than you want. We can live within our means, not our wants.
2. Acquire the 20% downpayment--but if you have to own plan to stay in your house for at least 7 years. Real estate is a long term investment--even if you life in your house, you have to expect you will be upside down in the first few years in a mortgage with 3% down
3. Save 10% of your mortgage payment each month for repairs and updates. A brand new home today is out of date in 7 years--Only in red hot seller's markets will buyer's accept less than stunning
4. Buy the best location in the neighborhood of your choice today--Even your favorite neighborhood has bad locations---get the best location you can find and fix up the house
5. Let the other person over-pay. If you make an offer on a house and another person comes in with an offer, stay with your initial opinion of value. In an artificially stimulated market buyers exist who would not be there in a non-stimulated market. Don't pay more because someone else is interested--let it go unless you don't mind over paying.
6. A home is NOT an investment. It's a home first and foremost. The home you live in has nothing in common with stocks, bonds, income property, etc.
7. Money spent on Home  inspections and radon tests may be better spent on down payments---you decide. Every house has some issues. Inspection walk around check lists might be sufficient to draw your attention to items to address in an offer or after you take ownership. Silly amounts of money are spent discovering reverse polarity, and un-bolted decks.
8. Better to do an energy audit and find the leaks where money goes out the windows and doors every day.

That's enough for today. I can't change the stimulus--it is what it is. I can help people be smart about owning. This sure looks familiar to me though.