Tax Change on Mortgages Could Shake Up the Housing Market

Posted on November 06, 2017 in Uncategorized | Add Your Voice

Tax Change on Mortgages Could Shake Up the Housing Market
The Republican tax plan unveiled on Thursday takes aim at the most sacred of cows: the provision that subsidizes homeownership by allowing the deduction of interest on mortgage debt.

For most of America, the impact would be minimal. The proposed bill would make the deduction available on mortgage debt of up to $500,000 — half the current ceiling, but more than double the median home price in the United States of roughly $200,000. Fewer than 3 percent of home mortgages are more than $500,000, according to data from CoreLogic.

But if the idea holds — and history suggests that will be difficult — it will echo loudly through higher-priced cities on the coasts. “The impact on the market is going to be recognizable,” said Ure R. Kretowicz, chief executive of Cornerstone Communities, a homebuilder in San Diego. “There’s going to be less incentive to build, and less incentive to buy.”

For the builders, it will also squeeze the high end of the market, where the biggest profits lie. The stocks of homebuilders fell sharply on Thursday: Lennar was down 3.3 percent, KB Home dropped 3 percent and Toll Brothers plummeted 6.1 percent.

“Halving the mortgage interest deduction and eliminating the deduction of state and local income taxes will have a notable effect across the country, especially in higher-cost areas,” said The Collingwood Group Chairman Tim Rood.

To understand the vast geographical disparities of the proposal, one need only look at home prices. In the Houston metropolitan area, about 6.5 percent of homes are valued at more than $500,000, according to Zillow. In San Jose, Calif., more than 90 percent are, and in San Diego, Calif., it is 63 percent.

read more: NYT

Mortgage Applications Decrease in Latest MBA Weekly Survey
Mortgage applications decreased 2.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 27, 2017.

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 3 percent compared with the previous week. The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 10 percent higher than the same week one year ago.

The refinance share of mortgage activity decreased to 48.7 percent of total applications from 49.5 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.8 percent of total applications.

The FHA share of total applications increased to 10.4 percent from 9.8 percent the week prior. The VA share of total applications decreased to 9.9 percent from 10.1 percent the week prior. The USDA share of total applications increased to 0.8 percent from 0.7 percent the week prior.

read more: MBA

Metro-Level Home Prices Jump, Some by Double-Digits
Home prices rose in more than 90 percent of America’s metro areas last quarter, according to a new report from the National Association of Realtors (NAR). The national median home price jumped 6.1 percent over Q2.

According to NAR’s Metropolitan Median Area Prices and Affordability report for the Q3 2017, the nation’s median home price is now $254,000 — up from $241,300 in the third-quarter of 2016. At the metro level, 162 out of 177 MSAs, or metropolitan statistical areas, experienced home price gains in Q3 — the most since 2015, when prices rose in 93 percent of MSAs.

Nineteen metros — about 11 percent of all MSAs — experienced price increases in the double digits. That’s down from Q2’s 23 percent. The metro with the biggest jump in median price was San Jose, California at 16.5 percent.

Lawrence Yun, NAR’s Chief Economist, chalks the jumps up to strapped inventory — as well as a particularly successful Q2.

“The stock market’s climb to new record highs, the continued stretch of outstanding job growth and mortgage rates under 4 percent kept homebuyer demand at a very robust level throughout the summer, Yun said. “Unfortunately, the pace of new listings were unable to replace what was quickly sold,” Yun said. “Home shoppers had little to choose from, and many had to outbid others in order to close on a home. The end result was a slowdown in sales from earlier in the year, steadfast price growth and weakening affordability conditions.”

read more: TheMReport

Housing Groups Pan GOP Swipe at Mortgage Deduction
Hopes that tax reform might soften a weakening of the mortgage interest deduction were quickly dashed Thursday as the plan from House Republicans appeared to land a double punch on the incentive cherished by the mortgage and housing industries.

The plan, as expected, would double the standard deduction, compelling many middle-class consumers to abandon itemized deductions such as that for mortgage interest. Some housing industry advocates had urged policymakers to consider a new housing tax credit as a substitute.

Not only did the new proposal leave out the housing tax credit, but it also delivered a tougher blow: halving the loan limit eligible for a mortgage interest deduction to $500,000. That aspect of the plan was immediately attacked by banking and housing industry groups, as well as some lawmakers.

“The bill eviscerates existing housing tax benefits by drastically reducing the number of homeowners who can take advantage of mortgage interest and property tax incentives,” said Jerry Howard, president of the National Association of Home Builders. “By undermining the nation’s longstanding support for homeownership and threatening to lower the value of the largest asset held by most American families, this tax reform plan will put millions of homeowners at risk.”

read more: National Mortgage News

Hiring Rebounds in October; Unemployment Rate Falls to 4.1%
The U.S. jobless rate fell to a 17-year low in October and employers hired at a strong pace, showing the labor market bounced back from recent hurricanes.

Nonfarm payrolls rose a seasonally adjusted 261,000 in October, the Labor Department said Friday. That was a pickup from the prior month, but undershot economists’ expectations for 315,000 new jobs.

Meantime, the unemployment rate ticked down to 4.1%, its lowest level since December 2000. The jobless rate, which changed little over the course of 2016, has dropped from 4.8% to 4.1% since the start of this year, a sign the labor market is heating up.

Nonetheless, wages failed to break out in October, rising 2.4% from a year earlier, a slowdown from the prior month.

“With the swings from the hurricanes now largely behind us, the longer-term challenge of wage growth returns to the foreground,” said Jed Kolko, chief economist at job site Indeed.

September’s payrolls data, initially reported as the first drop in seven years, were revised to show employers actually created 18,000 new jobs that month, extending the economy’s streak of job gains to a record 85 straight months.

read more: WSJ

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