The Cash for Clunkers program has gained a great deal of media attention – whether you think it is a great idea or the stupidest thing ever, short sale investors should make a mental note. While a program directed at vehicles may not initially appear to matter to those that invest in real estate, the trend in economic planning is what deserves more attention.

First a few facts for you to consider; the Cash for Clunkers program is not just a domestic program. In fact, ten other nations have implemented their own versions with similar results.

Next, Cash for Clunkers does not equally benefit all people.

Those with new, energy efficient vehicles will not benefit. Those with very limited budgets that only purchased modest priced used cars will not benefit. Those that recently purchased a car are plain out of luck and those that purchase after the program is over will not benefit (unless the program is extended). Also, those that do not purchase a car but pay taxes to support the program certainly do not benefit. Those that are in a position to purchase a new car and act now will receive the majority of the benefits from the program.

Finally, the program may actually hurt the poorest and most vulnerable population by eventually driving up the cost of used cars and parts by taking the current clunkers off the road permanently.  With fewer used cars to compete with (and fewer used parts to make affordable repairs…combined with fewer automobile dealerships and repair shops), the price of new cars will become more competitive (ie, the price difference between buying new versus used will not be as great).

Once the price of new cars stabilizes, the price of used cars will soon follow. Of course, it only makes sense. The government has spend big bucks bailing out a faltering auto industry; one of the last forms of big business remaining in this nation. Unfortunately, American cars haven’t sold well for years and profits were disproportionately generated by financing rather than actual car sales. So, how does this apply to real estate?

It’s important to understand the trend. Pay close attention to how the global community is responding to the need to jump start the economy. While private corporations have been using planned obsolescence for years to increase sales (it’s not your imagination – your products have been carefully calibrated to fall right after the expiration date!), never before have governments instituted mandates that required the destruction of property In order to uphold prices and stimulate the economy.

Additionally, proposals such as the Cap and Trade bill contain stringent energy and building codes which could effectively create a similar situation in real estate. Old homes that consume excessive amounts of energy may not be affordable options in the future – instead, they could be fodder for new programs designed to invigorate the building and construction trades here at home. 

The result will be the same; higher labor costs for new construction combined with more stringent building requirements and specified energy efficiency ratings are likely to drive the cost of new homes higher while simultaneously tearing down old cracker houses and other super affordable options. The end result is likely to be higher prices for both new and pre-existing homes making this the perfect opportunity to purchase short sale property at reasonable rates.

(thanks to Chris McLaughlin for this excellent commentary!)