Thursday, October 22, 2009

The Army can't quite time the housing market

More than four years ago the US Army announced plans to close its Fort Monmouth base and move all of the jobs to the Aberdeen Proving grounds in Maryland.

New Jersey has fought and is still fighting this decision but the Army is moving forward with it's plans. Here's the kicker: The Army has had a long-standing policy of paying at least 95% of the market price of a home if displaced workers can't sell their home but have to relocate. It's a fair policy that creates some artificial floor under housing prices (similar to farm subsidies) but it's a small concession to those that work for and serve in our military.

However, this is where the story separates from reality. According to the NY Post

"But employees recently got some unbelievably good news. Our government in Washington, with your taxpayer money and mine, will make sure that people who must sell their houses in the Fort Monmouth area because of the base closing get 95 percent of the 2005 fair market value.

Just in case you've forgotten, house prices have come down tremendously since 2005. In fact, the market peak was in mid-2006, according to the Case Shiller index, which tracks real estate trends.

I'm told that those affected by the decision, which incidentally also includes people who retired because of the impending closing, were ecstatic at what was called a Relocation Fair last week. Nobody could recall the government ever making quite such a good offer."

The people that take the Army up on the offer will get to sell at a peak NJ price (2005) and buy in a lower priced state (Maryland) in a post-bubble era. Pretty sweet deal.

I think the Army should really re-think that decision if someone has to move in 2009 why pay 2005 prices? What would have happened if prices doubled from 2005 to 2009? Would the Army still be paying 2005 prices or current market rates?


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