Without Tax Incentives for Homeownership, Home Values Will Decline
Without Tax Incentives for Homeownership, Home Values Will Decline
One of the major reasons for the lack of housing inventory is that homeowners are “equity challenged.” Mortgage credit availability decreased substantially as a result of regulatory policies enacted in response to the housing crisis, and with a few exceptions has been flat for about a year.
This is why the housing industry is concerned about the tax reform proposal introduced earlier this month.
“Tax policies that remove financial incentives for homeownership will only exacerbate the already low homeownership rate, and will directly and negatively affect the value of homes and the number of homes for sale,” says The Collingwood Group Chairman Tim Rood.
According to several analysts, for every one percentage point drop in the homeownership rate, roughly 1 million households become renters and lose the opportunity to create wealth through owning a home.
The federal government provided an estimated $77 billion in subsidies for homeownership in 2016. Some proponents of the House of Representatives’ tax plan say mortgage interest deduction and the state and local tax deduction distort the tax code and favor those who need help the least (wealthier homeowners). They say the tax incentives encourage families to borrow rather than save.
Currently, Republican lawmakers in the House Committee on Ways and Means have two major forces going against them as they attempt to pass H.R. 1, the Tax Cuts and Jobs Act of 2017: the National Association of Home Builders and the National Association of Realtors, two very powerful, very well-funded and aggressive lobbies oppose the legislation; and 52 Republicans in the House who are from coastal states, where the deductions are most favored due to much higher home prices and state income taxes.
One provision of the tax proposal would cut the $1 million limit for the home-mortgage-interest deduction to $500,000, meaning that homeowners could deduct interest payments only up to $500,000 worth of their home loan. On the plus side, only about 7 percent of mortgage holders have a balance over $500,000 and the minority of them file itemized returns. Moreover, this week there is discussion about the Senate Finance Committee drafting companion legislation that would keep the mortgage interest deduction limit at $1 million.
Everything’s Bigger in Texas — Including Housing Gains
A new National Association of Home Builders/First American Leading Markets Index (LMI) report shows sustained growth across the country, although single-family housing permits continue to struggle.
According the LMI, multiple Texas metros are leading the way — with Odessa and Midland, Texas, coming in one and two respectively on the Top 10 Small MSAs list and Austin-Round Rock, Texas, coming in third on the Top 10 Large MSAs List. Topping the Large MSAs list was Baton Rouge, Louisiana. Three Alabama metros also represented the South on the Top 10 Small Metros List: Florence-Muscle Shoals; Gadsden; and Auburn-Opelika.
The LMI calculates a market’s health by comparing it to normal economic and housing conditions. LMI tracks three particular factors: home prices, employment and single-family housing permits. According to this latest report, the LMI Score grew in 84 percent of the tracked areas — 282 metropolitan statistical areas — during the third quarter of 2017. The index tracks 337 total local markets and MSAs and uses this data to assign each area an LMI Score. The nationwide LMI Score has reached 1.03.
A metropolitan area is considered to have normalized when those three components average out to an LMI score of 1.0. LMI Scores now exceed 1.0 in 197 out of the 337 metro areas the index tracks. The number of normalized metro areas has jumped by 40 compared to last year, and by six just since the second quarter of 2017.
read more: The M Report
CRE Economists Say New Fed Chair Nominee Not Likely to Rattle the Market
President Donald Trump last Thursday nominated Federal Reserve governor Jerome Powell as the central bank’s new chairman. Real estate economists do not expect Powell to force dramatic changes in monetary policy.
Powell had seemed the most likely nominee of the candidates Trump was considering, says Alessandro Rebucci, an associate professor of finance, real estate and macroeconomics at Johns Hopkins Carey Business School. Powell also represents continuity for the institution and is unlikely to introduce unexpected proposals, which is good news for the markets and the real estate sector, he adds. “He fits the president’s agenda without jeopardizing the stability and functionality of a very important institution,” Rebucci says.
In the announcement during a Rose Garden ceremony, Trump said Powell, who previously had served as undersecretary in the U.S. Department of Treasury under George H.W. Bush, brings to the role extensive public and private sector experience. Trump said the economy has been improving, citing record-low unemployment and back-to-back quarters of GDP growth as indicators. He also said the economy needs sound monetary policy and careful oversight of the nation’s banking system, and “strong, sound and steady leadership” at the Fed. Trump added that he is confident that Powell, who has the respect of both parties of Congress, can steer the economy in the right direction.
“He will provide exactly that type of leadership,” Trump said. “He’s strong, he’s committed, he’s smart.”
read more: NREI
Developers, Builders of 55+ Housing Segment Remain Confident in U.S.
According to the National Association of Home Builders (NAHB) 55+ Housing Market Index (HMI), which was released this week, U.S. builder confidence in the single-family 55+ housing market continued to be positive in the third quarter of 2017.
While the index measuring builder confidence in the single-family 55+ market dropped from a reading of 66 in the second quarter to 59 this quarter, it’s the 14th quarter in a row in which the reading was above 50, the break-even point at which more respondents see conditions as good than poor.
“The effects of destructive hurricanes and a series of wildfires earlier this fall are likely reflected in this quarter’s survey, which was conducted at the end of September,” said Dennis Cunningham, chairman of NAHB’s 55+ Housing Industry Council and president of ActiveWest Builders in Coeur d’Alene, Idaho. “However, this is a temporary effect. Overall confidence remains high and builders continue to be optimistic about the 55+ market in the long run.”
There are separate 55+ HMIs for two segments of the 55+ housing market: single-family homes and multifamily condominiums. Each 55+ HMI measures builder sentiment based on a survey that asks if current sales, prospective buyer traffic and anticipated six-month sales for that market are good, fair or poor (high, average or low for traffic).
When compared to the previous quarter, among the three single-family components of the 55+ HMI, present sales dropped from 70 to 65, sales expected in the next six months from 80 to 63 and traffic of prospective buyers from 53 to 44.
Meanwhile, the 55+ multifamily condo HMI slipped slightly from 53 to 51. Of the three 55+ condo HMI components, present sales edged down from 56 to 55, sales expected in the next six months stayed the same at 55 and traffic dipped from 45 to 40.
read more: World Property Journal
High Home prices Hit First-Time Buyers Harder than Ever; Student Loans May Be Part of the Reason
As the economy and wages improved in 2017, first-time homebuyers were finally moving back into the market — until that turned around again.
Sky-high home prices and few low-priced listings took their toll on these buyers yet again. For those who did buy, they had to pony up and pay more money for less house.
The share of sales to first-time buyers fell to 34 percent in 2017, down from 35 percent in 2016, according to the National Association of Realtors’ annual Profile of Home Buyers and Sellers. That is the fourth-lowest share in the survey’s 36-year history. First-time buyers historically make up closer to 40 percent of homebuyers.
The drop in buyers is, in part, due to a rise in student-loan debt. For those who did buy, 41 percent said they had student debt, up from 40 percent in 2016. The average amount of debt also increased to $29,000 from $26,000 last year.
More than half of buyers owed at least $25,000, and a sizable share said that debt delayed their saving for a down payment. And that down payment had to be larger, given the lack of affordable homes for sale.
“The dreams of many aspiring first-time buyers were unfortunately dimmed over the past year by persistent inventory shortages, which undercut their ability to become homeowners,” said Realtors’ chief economist Lawrence Yun.
read more: CNBC
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