Archive for the ‘Real Estate’ 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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Americans are decreasingly willing )or able) to move … “mobility” in sharp decline.

June 11, 2019

According to NextGov:

Mobility in the United States has fallen to record lows.

In 1985, nearly 20 percent of Americans had changed their residence within the preceding 12 months, but by 2018, fewer than ten percent had.

That’s the lowest level since 1948, when the Census Bureau first started tracking mobility.

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What’s going on?

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College life: Off-campus housing goes resort-style …

September 8, 2015

Will the aged 3-to-a-room dormitory go the way of of the dinosaur?

A growing trend is local privatization of student housing.

And, I’m not talking about the pest-infested, party-trashed places that populate most college towns.

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Nope, we’re talking serious upscale residences …

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Nums: The state of the housing market in 2 charts …

September 12, 2013

I was a bit surprised to hear on the news that Citi was laying off a couple of thousand folks in their mortgage division.

After all, there’s been lot of talk re: housing recovery …  with some markets el fuego.

Hmmm.

Turns out that mortgage applications bottomed out after the meltdown …and arguably showed some up-trend in the past couple of years (thanks to the Fed QE program),

But,  mortgage apps have declined recently (as interest rates started moving up a bit) and are hovering at very low levels

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What about home prices?

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What percentage of assigned offices and cubicles sit empty during a typical day?

November 26, 2012

Answer: According to a study done by Cisco … 60%.

That’s why companies like Accenture are going to “hoteling”, why more hotels are putting in business suites, and why Starbucks is adding conference rooms in some locations.

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What are the bigger implications?
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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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Apparently the Feds don’t read the HomaFiles …

August 12, 2011

A couple of years late, the WSJ reports that …

The Obama administration will announce plans to seek investors’ ideas for turning thousands of foreclosed properties owned by government-backed entities into rental homes, .

The move is intended to put a floor under declining home prices by creating a way to deal with hundreds of thousands of potential foreclosures in coming years.

No kidding …

Loyal readers know that the HomaFiles has been all over this issue for a couple of years,  Original post

Ken’s Plan:

Some simple tax code changes can unleash private capital to suck up bargain priced residential real estate and induce investors rent it out.

Specifically, eliminate future capital gains taxes on any residential property bought in the next 2 years, allow investors (i.e. landlords) who rent the properties to depreciate the properties on an aggressively accelerated basis (i.e. say, 5 years), and allow any excess tax losses from renting to be applied to ordinary income.

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.

The downsides?

The higher prices would be somewhat artificial, unless the model becomes a new paradigm – replacing the American Dream of home ownership.

And for sure, the tax benefits would accrue to “fat cats”.

So what, let’s get the economy rolling …

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Fed Economist: A Home is a Lousy Investment

January 7, 2010

Punch line: Before the housing bust, Americans tended to think their homes were their best and most important investments –- a view promoted by Washington policy makers who made home ownership a top priority.

Karen Pence, who runs the Federal Reserve’s household and real estate finance research group, argues that homes are actually a terrible investment.

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Excerpted from WSJ: Fed Economist: Housing Is a Lousy Investment, January 5, 2010

Putting aside the fact that home prices have fallen dramatically, Pence says several factors make homes a lousy investments:

  1. An indivisible asset.
    If you own stocks and bonds and suddenly need a little cash, you can sell some of your stocks or bonds but not all. With a home, on the other hand, “you can’t just slice off your bathroom and sell it on the market.”
  2. Undiversified.
    You can buy stocks or bonds in industries or countries all over the world. A home is a bet on one single neighborhood.
  3. High transaction costs
    When you buy or sell a home, you pay real estate agent fees, mortgage fees and moving costs.
  4. Asymmetrically liquid
    That means it’s easy to get money out when home prices are going up. (You just take out a bigger mortgage.) But it’s hard to take money out when prices are going down because refinancing becomes more difficult.Put another way, the leverage that you have in your house with a large mortgage means your investment does well in good times but could be lousy in bad times.
  5. Highly correlated to the job market.
    Home prices in a neighborhood tend to rise when the job market is improving in the area and fall when the job market is worsening. This means that your main financial asset provides the smallest cushion to you when you might need it most.

Ms. Pence has been a Washington renter for many years. Ironically, though, she says she’s considering buying a house herself. The reason: Her husband wants a dog and wants to start gardening. That means moving out of the apartment.

Full article:
http://blogs.wsj.com/economics/2010/01/05/fed-economist-housing-is-a-lousy-investment/

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

The biggest real estate blunders ever …

November 12, 2008

Excerpted from Forbes.com, “Worst Business Blunders” Nov. 11, 2008

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Ken’s Take: As we all lick our wounds with home prices down, consider these …

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Blunder: The sale of Manhattan island
Blunderer: The Canarsees
Size Of Blunder: $1 trillion

In 1626, Canarsee natives traded for trinkets a now rather stylish plot: Manhattan (then called New Amsterdam). The 23 square miles many New Yorkers consider “the center of the universe” is now valued at a cool $1 trillion.

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Blunderer: Napoleon, On Behalf Of France
Blunder: The sale of the Louisiana Territory
Size Of Blunder: $750 billion

In 1803, Napoleon was struggling to defend all the land France had acquired in the New World, specifically Haiti, which was in the midst of a slave revolt. With his army stretched thin, and unwilling to relinquish Haiti, Napoleon offered to sell the entire territory of Louisiana, rather than just the port of New Orleans, as had previously been discussed. The offer: $15 million–3 cents per acre–or about $284 million today. The current value of that land (now including portions of 15 U.S. states and two Canadian provinces): around $750 billion.

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Blunder: Sale of Alaska
Blunderer: Czar Alexander II, On Behalf Of Russia
Size Of Blunder: $100 billion 

Fearing he would lose Alaska by force, Czar Alexander II advised Russian minister Eduard de Stoeckl to offer a 586,412 square mile ice block–Alaska–for sale to the U.S. Following an all-night negotiation, the agreement was signed March 30, 1867. The U.S. paid $7.2 million–1.9 cents per acre–for a land rich in oil and gold, currently valued at $100 billion, At the time of the sale, famed journalist Horace Greeley of the New York Tribune called the purchase both “inconvenient” and “dangerous” for the U.S., as the territory offered “nothing of value but furbearing animals.”

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Full article:
http://www.forbes.com/2008/03/10/ford-microsoft-xerox-ent-manage-cx_ml_0310blunder_slide.html?thisSpeed=20000

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