Archive for the ‘Home Ownership’ Category

$$$: What’s the impact of the Tax Cut & Jobs Act on house prices?

August 15, 2019

Answer: For sure, the TCJA put downward pressure on home values … how much depends on a home’s value before deduction caps were put in place.

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In a prior post, we started thinking about this question (since nobody else seems to have landed on the issue) … and took a stab at estimating the isolated impact of the TCJA’s cap on the mortgage interest deduction.

A couple of readers asked (1) What about the impact of the SALT deductions cap?, and (2) Can you work through a example from start to finish … as simply as possible?

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Always aiming to please my loyal readers, here’s a try at answering both inquiries with a simple(?) example….

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$$$: What’s the impact of lower mortgage interest deductions on house prices?

July 19, 2019

Worst case answer: About $50,000.

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First, a couple of disclaimers …

1) I’m not a tax accountant or lawyer … so, nothing I say should be construed to be financial or tax advice.

2) Philosophically, I’ve always thought the income tax deduction for mortgage interest should be shelved.

Note: That philosophical principle certainly never stopped me from claiming my allowed tax deductions for my home mortgages.

Mortgae - Interest Rate GRAPH

OK, let’s get started…

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Have homeownership (and home prices) bottomed out?

November 19, 2012

Couple of interesting charts from Prof. Mark Perry

The home ownership rate in the US has fallen to about 65% … down from a peak over 69% during the housing boom & bubble.

Couple of observations:

  • With roughly 120 million households, that converts to about 5 million housing units … a rough indicator of how many folks bought homes that they couldn’t afford – either from the get=go or impacted by the recession
  • Big question: have we reached bottom or do we have another 1% – 1 million units – to go?  Lots of analysts are saying we’ve reached bottom … but that requires an inflection point, right?

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Note surprisingly, home prices map closely with the homeownership rate … except for the past couple of periods – with house prices trending up and homeownership still trending down.

Raises questions:

  • Is the recent home price strength just a blip that will fall back into pattern?
  • Or, are home prices a leading indicator that we’ve reached bottom?

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Unleashing private capital to stabilize the housing market … it’s happening !

February 8, 2012

For a couple of years (literally – back as far as Nov. 2008), I’ve been blogging that the key to stabilizing the housing market is incentivizing private capital (i.e. investors) to buy up distressed properties and rent them.

To refresh your memory, here’s the plan I advocated.

  1. Eliminate future capital gains taxes on any residential property bought in the next 2 years, and held for at least 3 years.
  2. Allow investors (i.e. landlords) who rent the properties to depreciate the properties on an aggressively accelerated basis (i.e. say, 5 years),
  3. Allow any excess tax losses from renting to be applied to ordinary income.

I argued that the likely outcome: a massive inflow of private capital to buy residential properties, housing prices would be bid up, folks would have access to affordable rentals, and the economy would be stimulated … REALLY stimulated.

Well, BusinessWeek reports that “the dealmakers running America’s private equity firms see opportunity in one of the most distressed precincts of the U.S. economy: residential housing”

Buyout funds are raising billions to convert foreclosed homes into rentals, which Washington hopes will improve the housing market

For example:

  • GTIS Partners will spend $1 billion by 2016 acquiring single-family homes to manage as rentals
  • GI Partners, a Menlo Park (Calif.) private equity fund, expects to invest $1 billion
  • Los Angeles-based Oaktree Capital Management will spend $450 million on similar housing deals.
  • Cerberus Capital Management, (DB)Deutsche Bank, (FIG)Fortress Investment Group, and Starwood Capital Group sponded to an Administration request for proposals on how to dispose of the government’s inventory of foreclosed homes.

Some pundits say: “This will be a new institutional asset class in the next 24 months.”

Why the enthusiasm?

  • Obviously, low prices and high demand for rentals make the market intriguing.
  • About 7.5 million homes with a market value of $1 trillion will be liquidated through foreclosures or other distressed sales by 2016.
  • “The share of Americans who are willing and able to own their own home is still falling,”
  • 20 million single-family homes are already serving as rentals
  • Single-family home rentals — which have yielded annual returns averaging 8.1 percent since 1990 — can generate cash flows that are 3 percentage points higher than apartments.
  • The U.S. government is eager to clear out the foreclosed properties now on its books.

Hmmm.

Imagine if there was a tax incentive … and imagine if the program had been in place for a couple of years …

Oh, well.

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The good news: housing is more affordable now … if you have a job, that is.

October 28, 2011

According to the WSJ ;

“While the fall in home prices has been painful for current owners, it has also made housing far more affordable for new buyers.”

In fact, the ratio of homes prices to annual income is at its lowest point in 30 years.

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Tidbits

Five years into the housing bust, the U.S. still has 10.9 million “underwater” borrowers, whose homes are worth less than the original purchase price.

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If Pres. Obama’s  homeowners refinance gets traction, investors who hold mortgage-backed securities will take a hit when those securities fall in value as borrowers prepay their old loans.  In fact, the MBS market fell out of bed after the White House announcement on Monday.

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The Congressional Budget Office tested an economic model of the President’s refinancing plan and estimated that:

  • Government enterprises like Fannie and Freddie would save $3.9 billion from refinancing, but they’d also lose $4.5 billion from the reduced value of their mortgage-backed securities.
  • Pension funds, banks and others would lose as much as $15 billion.

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Just in case you thought the housing crisis was behind us …

November 25, 2009

Just in case you thought the housing crisis was behind us … some factoids:

Underwater Mortgages

Most U.S. homeowners still have some equity, and nearly 24 million owner-occupied homes don’t have any mortgage.

But, the proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%.

Nearly 10.7 million households had negative equity in their homes.

5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home’s value.

Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth.

More than 40% of borrowers who took out a mortgage in 2006 — when home prices peaked — are under water.

Even recent bargain hunters have been hit: 11% of borrowers who took out mortgages in 2009 already owe more than their home’s value.

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Mortgage Delinquencies

About 7.5 million households were 30 days or more behind on their mortgage payments or in foreclosure.

Mortgage troubles are not limited to the unemployed. About 588,000 borrowers defaulted on mortgages last year even though they could afford to pay — more than double the number in 2007.

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House Sales & Starts

Sales of previously occupied homes in October jumped 10.1% from September to a seasonally adjusted annual rate of 6.1 million, the highest since February 2007.

Realtors reported that home sales in October were up 24% from a year earlier.

The number of homes listed for sale nationwide was 3.57 million at the end of October, down 3.7% from a month earlier.

Jittery home builders and bad weather led to a 10.6% drop in new home starts in October.

Excerpt from WSJ: One in Four Borrowers Is Under Water, Nov. 24, 2009
http://online.wsj.com/article/SB125903489722661849.html?mod=WSJ_hps_LEADNewsCollection

Homeowners are fatter than renters … and other downsides of owning a home.

June 16, 2009

TakeAway: Now that the housing bubble has burst and owned homes have lost their luster as piggybanks, more attention is being placed on the non-financial aspects of owning a home. 

The obvious: more chores mean less time for socializing. 

The shocker: homeowners are, on average, fatter.   Hmmmm.

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Excerpted from Knowledge @ Wharton, “You Think Owning a Home Will Make You Happy? Don’t Be Too Sure”, June 10, 2009

For generations, the conventional wisdom  is that owning a home is the cornerstone of the American Dream, the foundation for a happy family life and long-term financial security. “On average people like living in zip codes with a higher median housing value so they can live in reflected glory.”

Now, a new research paper challenges that conventional wisdom …   while homeowners do experience significant joy, they also face more aggravation, spend less time with friends and are even heavier than renters living in comparable homes.

Past research into the mood of homeowners showed that people felt a sense of pride and comfort in having their name on a deed. But, once the data are controlled for a range of variables, owning a home appears to deliver no more happiness than signing a monthly rent check.

“Our perception that homeowners are better off than renters might be fueled only by casual observations. The conventional wisdom might not hold up so well when you look at the data carefully.”

Obviously, the bursting of the housing bubble has led to a good deal of stress — both financial and psychological.

Even in a period of optimism about housing as a financial investment, homeownership does not necessarily represent the fulfillment of a dream. “Overall, there is little evidence that homeowners are happier by any of the following definitions: life satisfaction, overall mood, overall feeling, general moment-to-moment emotions and affect at home. The average homeowner, however, consistently derives more pain (but no more joy) from a house and home.”

The study focused on the intensity of 10 feelings : Impatient, Competent/Confident, Tense/Stressed, Happy, Depressed/Blue, Interested/Focused, Affectionate/Friendly, Calm/Relaxed, Irritated/Angry … and created a created a net measure of mood.  

It is clear that homeowners derive as much pain from their home that is similar in magnitude and significance to the joy they gain from homeownership.

Even after controls are applied for financial insecurity — often cited  as the main negative of homeownership — homeowners report more pain associated with their home … it is simply not true that homeowners are happier because they enjoy greater self-esteem and a greater sense of control in their lives.

The average homeowner tends to spend less time on active leisure or with friends, experiences more negative feelings during time spent with friends, derives less joy from love and relationships and is also less likely to enjoy being with people.  Average homeowners spend 4% to 6% less time interacting with friends and neighbors

Adding insult to injury, the average homeowner tended to be 12 pounds heavier.

Full article:
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2257