Talking about tax reform and the impact on housing, rail traffic, unemployment claims, consumer comfort and the shrinking number of homes for sale!
Tax Reform, the Economy and Real Estate
There is plenty of information out there about tax reform and the possible implications for real estate. We have to read every article and consider not just what is said but who is saying it and why…
NAR on Tax Reform
NAR is asking for 3 things:
- Retain the capital gains exclusion
- Keep the mortgage interest deduction at $1 Million
- Let people use state and local taxes ( SALT) as deductions
Changing the capital gains from having to live in a home for 2 of the past 5 years to 5 of the past 8 years will probably hurt many people needing to sell their home. This could hurt the already pitiful number of homes for sale.
While it may seem crazy to keep the mortgage interest deduction at such a high amount, you have to consider we are thinking about home values in the Anderson SC area. If you look at home prices in other areas of the US, you can see that lowering the mortgage interest deduction would negatively impact many Americans.
The reasoning behind wanting SALT deduction limitations less “unsavory” is that it is possible that property owners will be responsible for more of the tax burden. Renters may think this is OK but this additional cost will be passed on to them via higher rents.
NAR also said:
A majority of recently surveyed homeowners say that changing homeownership tax incentives would restrict their mobility and cause them financial strain.
The really scary thing uncovered by this survey is that 30% would be reluctant to move. Obviously, this could be a HUGE negative impact on the housing market.
Only 1 in 7 Homes Eligible to Use the Mortgage Interest Deduction
Under current law, roughly 44 percent of U.S. homes are worth enough for it to make sense for a homeowner to itemize their deductions and take advantage of the mortgage interest deduction. Under a reconciled House and Senate tax reform plan (as reported) that proportion of homes drops to 14.4 percent.
This could make the tax benefits of owning a home disappear for many Americans. With the positive benefits to society and the economy from a healthy level of home ownership, we must carefully consider the pros and cons of the mortgage interest deduction.
Are there other better ways to encourage a healthy sustainable level of home ownership?
What is a healthy sustainable level of home ownership?
President Trump’s on the Tax Cut:
Snippets from WhiteHouse.gov:
As a candidate, I promised we would pass a massive tax cut for the everyday, working American families who are the backbone and the heartbeat of our country.
As we speak, Congress has reached an agreement on tax legislation that will deliver more jobs, higher wages, and massive tax relief for American families and for American companies.
It closes special interest loopholes; it lowers tax rates for families; and our plan also cuts taxes on businesses, which is expected to raise income by an average of more than $4,000. So your income goes up. It’s like having a $4,000 increase, which isn’t bad, which isn’t bad.
Trump doesn’t really say much in his speech despite talking a bunch. The tax cuts for business are being touted as a way for companies to increase wages for employees…
However, the tax cuts will be used by corporations for stock buy backs in my opinion…
Jamie Dimon on the Tax Cut
Dimon, JPMorgan Chairman and CEO, said:
Some will raise wages. Some will buy companies. Some may do dividends and buybacks. Don’t act like that is a bad thing. That is their money. Think of it as a QE4. That money gets recirculated in the American system.
We will have to wait and see if any of this “circulating money” gets to the average American via higher wages. Don’t hold your breath…
As of right now, we do not know with 100% certainty what the tax reform actually say or how it will impact real estate and home prices. Jonathon Miller has written an excellent breakdown here that I strongly suggest you read.
Some will support the tax reform and some will claim it is the worst thing ever. My suggestion is to NOT blindly believe one thing or another because of your political beliefs.
When I first started hearing about the tax reform, I thought it could be good for many Americans. I am not so sure about that anymore. It may be great for large corporations but it will add to the deficit dramatically.
More importantly, it appears that it will be bad for housing, the home ownership rate and the average American. But only time will tell if what I think now turns out to be true.
Time has a wonderful way of revealing the truth…
Rail Traffic Continues to Increase
For this week, total U.S. weekly rail traffic was 560,756 carloads and intermodal units, up 4 percent compared with the same week last year.
Total carloads for the week ending December 9 were 267,963 carloads, up 3.4 percent compared with the same week in 2016, while U.S. weekly intermodal volume was 292,793 containers and trailers, up 4.6 percent compared to 2016.
Unemployment Claims Decrease
In the week ending December 9, the advance figure for seasonally adjusted initial claims was 225,000, a decrease of 11,000 from the previous week’s unrevised level of 236,000. The 4-week moving average was 234,750, a decrease of 6,750 from the previous week’s unrevised average of 241,500.
Another positive report as unemployment claims dropped to a 44 year low. If we start to see wage growth as companies are forced to compete for qualified employees, it could really make the economy grow.
Consumer Comfort Decreases
U.S. consumer sentiment cooled from a 13-week high, while remaining at an elevated level during the heart of the holiday-shopping season, figures from the Bloomberg Consumer Comfort Index showed Thursday.
Even though it eased, the measure of consumer comfort for the latest reporting week was still the highest for any comparable period since 2000, suggesting holiday sales will be robust. Americans are embracing a rosier economic picture, record stock prices this month and an unemployment rate at an almost 17-year low.
More good news and hopefully we will see very strong economy going into 2018.
Largest Year-Over-Year Decrease of Homes for Sale Since 2013
In the fourth quarter, U.S. housing inventory saw its steepest fall since 2013, dropping 10.5% from this time last year, with the biggest drop across housing segments occurring among starter homes.
This quarter’s report found that while starter and trade-up home inventory decreased again at double-digit rates, premium homes saw the biggest declines in more than four years, at 5.9%. In addition, homes are now the most unaffordable since Trulia started keeping track in 2012.
Please understand that Trulia is talking about the entire US and you need to consult with a local Realtor to discuss what is happening in your area. If you are curious about real estate in Anderson County SC, you can read the Market Reports. Or you can email me with more specific questions.
Well that is it for today! Check back tomorrow as I ran out of time again before I got to talk about mortgage rates and what we can expect after the Fed raised their benchmark rate.
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