MORTGAGE DEDUCTION UNDER RENEWED SCRUTINY
March 14, 2011
HARRY’S WEEKLY UPDATE
A CURRENT LOOK AT THE COLORADO SPRINGS RESIDENTAIL real estate MARKETPodcast: March 8, 2011
MORTGAGE DEDUCTION UNDER RENEWED SCRUTINY
If you own a home, you get a tax deduction on your mortgage interest. But some people now argue that the policy should be changed because:
- It doesn’t really encourage homeownership.
- The government shouldn’t be encouraging homeownership anyway.
- The government can’t keep giving out such a big tax break when it’s facing huge deficits.
- The policy isn’t giving enough of a tax break to lower-income families.
Despite these objections, it will be difficult to revamp a tax deduction that’s been in place for nearly a century. Housing experts are strongly against reducing or eliminating the deduction because they believe it would discourage home-buying, particularly given the weakness of the housing market. Both Congress and the White House would have to approve any change to the tax code, but they could be reluctant to take on such a controversial issue before the 2012 presidential election.
The mortgage-interest deduction works like this: Say a home buyer makes $50,000 a year, and paid $5,000 last year in interest on his mortgage. If he claimed his mortgage-interest deduction, the IRS would tax only $45,000 of his income (or less if he claimed other deductions).
The IRS also lets people claim deductions on interest they pay on a second home or a home equity loan. The home mortgages must be $1 million or less, and the home equity loans must be $100,000 or less.
The mortgage-interest deduction is probably most helpful for people who bought their homes recently. That’s because when you first buy a home, a large portion of each monthly payment goes toward paying down the interest. As you live in your home longer, the portion of your monthly payment that goes toward interest will shrink, and the portion that goes toward principal will increase, at least in most traditional home loans.
The Obama administration’s proposed 2012 budget would leave the deduction in place, but places some limits on the deductions claimed by families making more than $250,000 a year.
The Office of Management and Budget (OMB), which helps the White House develop its budget, estimates that the mortgage-interest deduction cost the government $79 billion in forgone taxes in 2010. That could rise to as much as $144 billion in 2016, the OMB estimates. While some observers argue that the government should get rid of the deduction to help plug its budget gap, others say homeowners should be allowed to keep their money.
The president’s deficit commission advocates changing the tax deduction to a tax credit. It would also cap eligible mortgages at $500,000 instead of $1 million, and eliminate any tax benefits for second homes and home equity loans.
After the deficit commission’s report was released in December, the real estate industry fired back. NAR cited a recent survey of almost 3,000 homeowners and renters.
Nearly three-fourths of the homeowners and two-thirds of the renters said the mortgage-interest deduction was “extremely” or “very” important.
The purpose of the mortgage-interest deduction is to encourage people to buy homes, with the idea that homeowners take better care of their property, contribute more to their neighborhoods and can build wealth.
But some argue that the government shouldn’t subsidize homeownership. The government pushed homeownership hard in the 1990s and early 2000s, and some of the borrowers who got homes couldn’t really afford them. Most experts agree that this was one of the causes of the financial meltdown.
On the other end of the spectrum, some people support changing the deduction because they say it doesn’t actually fulfill its stated purpose, to increase home buying. Australia, Canada and England don’t give out tax deductions on mortgage interest, and they have higher homeownership rates than the U.S.
In fact, some say that the mortgage-interest deduction may actually discourage homeownership. In tightly regulated, land-scarce metro areas, the tax deduction can raise demand for homes but not supply, making it more expensive for people to buy houses.
Furthermore, although the mortgage-interest deduction tends to disproportionately benefit families making $100,000 or more each year, largely because they tend to have the biggest houses and the biggest house payments, middle- and lower-income homeowners tend to actually get a better deal by claiming the standard deduction instead of itemizing their deductions to claim the mortgage-interest deduction.
Some say they doubt that the mortgage-interest deduction is ever a deciding factor when a family chooses to buy a home, though it may encourage some families to buy bigger homes.
The basic question some experts ask is, “Should the government be subsidizing homeownership?”
NAR “HOME OWNERSHIP MATTERS BUS TOUR” BEGINS IN CHICAGO
The day before the National Association of REALTORS® started its Home Ownership Matters Bus Tour at the Chicago Flower & Garden Show, REALTORS® from the Chicago area gathered at NAR headquarters for a town hall-style meeting. The topic: the state of home ownership in America today.
2011 NAR President-Elect Moe Veissi, in Chicago for the kick-off of the tour, encouraged REALTORS® to start talking with peers and clients about how much the U.S. economy is affected by home ownership. ”We need to spread the word,” he said. Key messages he asked members to share:
- The housing market makes up $4 trillion, or about 15 percent, of the total U.S. gross domestic product.
- The housing industry has led the way out of six of the last eight U.S. recessions.
- For every two homes sold in the United States, one job is created.
One of NAR’s key priorities is preventing any chipping away of the mortgage interest deduction as a means of helping to reduce the federal deficit. The push comes at a time when editorial boards of major newspapers such as The New York Times and The Washington Post have come out in favor of eliminating or reducing this tax benefit, which has been in place for almost 100 years.”Home owners already pay a majority of the taxes in this country,” Veissi said.
“The deduction didn’t cause the deficit problem,” Veissi said. “Rather than taking away the deduction, the government needs to look internally at how it can streamline its operations. Small businesses have been making these type of cuts for years.”
Also top of mind for members was the need to fix the financial system and free up capital for qualified buyers. Veissi said. “If we had more financing options, we would sell more real estate today,”
Veissi said NAR strongly favors reforming — rather than eliminating — the government-sponsored enterprises (GSE) that enable the secondary mortgage market to operate. “The GSEs are broken but they’re fixable,” Veissi said. “Without GSEs, we’ll lose the system that helped many of our parents and grandparents become homeowners. If you privatize the secondary mortgage market, you eliminate the concept of the 30-year mortgage,” he said.
The Home Ownership Matters bus tour is an opportunity for NAR to engage with American consumers on these issues. The bus travels from Chicago to Denver to Portland during the month of March, with a few intermediate stops along the way. The tour’s message is simple but powerful: Home ownership matters to individuals, to communities, and to the country. We hope to see a lot of you as we travel from city to city!
FORECLOSURES POST BIGGEST DROP ON RECORD
The number of foreclosure notices filed nationally in February declined 14 percent compared with January, and foreclosure notices dropped 27 percent compared to last year at this time. The number of all U.S. homes in some stage of foreclosure fell drastically last month, reaching a 36-month low. Initial default notices, scheduled foreclosure auctions, and homes repossessed by lenders all dropped in February, RealtyTrac, a foreclosure tracking site, says. This marks the largest year-over-year decline that RealtyTrac has ever recorded.
In El Paso County, foreclosure forecasts dropped to 4200 in 2011, the lowest level in 5 years. Again, the Pikes Peak area outperformed most of the rest of the country.
Nationally, Lenders repossessed 64,643 homes in February, a 17 percent drop from January.
On the national level, initial default notices dropped 16 percent from January — and 41 percent from a year ago. What’s more, foreclosure auctions dropped 10 percent from last month and 21 percent from February of last year, RealtyTrac said.
Rick Sharga, a senior vice president at RealtyTrac, says the real estate market isn’t out of the clear quite yet. He expects foreclosure activity to likely spike again as banks resolve foreclosure paperwork issues.
About 2 million households are in foreclosure proceedings. In addition, about 5 million borrowers are at least two months behind on their mortgage payments.
POLL FINDS 'HALF-FULL' HOUSING OUTLOOK
The Wall Street Journal (03/10/11)
A new survey of potential home buyers and sellers reveals that 68 percent of respondents believe the housing market and property values will pick up in the next year or two.
Just released, the poll also shows that 86 percent of Americans agree real estate is a good investment despite volatility in recent years; the finding suggests that some buyers may be more optimistic while sellers are wary.
Nonetheless, the survey reports that 78 percent of those who sold homes in the last year were satisfied.
30-YEAR MORTGAGE RATES HOLD STEADY THIS WEEK
Daily real estate News | March 11, 2011
National Mortgage rates continued to hold steady below 5 percent this week, according to Freddie Mac’s weekly mortgage market survey. Interest rates for 30-year fixed-rate mortgages have averaged at or below 5 percent in every week but one this year, contributing to record home affordability.
Here are how our local rates fared for the week:
- 30-year fixed-rate mortgages: averaged 4.78 percent.
- 15-year fixed-rate mortgages: averaged 4.75 percent.
- 5-year adjustable-rate mortgages: averaged 3.75 percent
It’s a great time to buy !! Don’t let this opportunity get away !!!
THERE HAVE BEEN SOME KEY CHANGES IN AMERICANS’ ATTITUDES TOWARD HOUSING AND THE ECONOMY
RISMEDIA, March 1, 2011—Fannie Mae’s latest national housing survey finds that Americans are more confident about the stability of home prices than they were at the beginning of 2010, even though they lack confidence in the strength of the economy:
The Fannie Mae Fourth Quarter National Housing Survey, conducted between October 2010 and December 2010, polled homeowners and renters to assess their confidence in homeownership as an investment, the current state of their household finances, views on the U.S. housing finance system and overall confidence in the economy.
Seventy-eight percent of respondents believe housing prices will hold steady or increase over the next twelve months, up from 73% in January 2010; but almost two-thirds still believe the economy is on the wrong track, virtually unchanged (61%) from the beginning of last year.
Additional survey highlights include:
Fifty-nine percent of Generation Y (ages 18-34) believes buying a home has a lot of potential as an investment, even though this age group suffered the steepest decline in homeownership during the housing crisis—from nearly forty-four percent when home prices peaked, to under forty percent in 2009.
During 2010, survey respondents increasingly expressed a strong belief that it will be harder for future generations to obtain a mortgage. Three-quarters of those surveyed (74%) believe it will be harder to get a mortgage in the future, up from just over two-thirds at the beginning of 2010.
BEFORE YOU LIST YOUR HOME FOR SALE
Today's market presents some very unique opportunities for buyers. With affordability near record highs and interest rates near record lows, many homeowners are making the decision to move up or on. Here a few simple tips to take into consideration when listing your home for sale.
1. Curb Appeal: Buyers make snap judgments about each home they view. These judgments are drawn largely from first impressions. Be sure your home has impressive curb appeal. Fresh flowers and mulched beds, along with trimmed hedges and grass are a must. If your home needs a fresh coat of paint, now is the time. And even if your paint or siding is in good repair, consider painting your front door an eye-catching color, such as red or blue. Remember, most Buyers make up their minds about your house within the first 15 seconds.
2. Inspection: An inspection can make or break a deal. Even after they've fallen in love with your house, a buyer may decide foundation issues or faulty electrical are too much of a headache. The benefits of having an inspection done prior to listing can be two-fold. First, your buyers will be aware of what repairs are needed before they make an offer. Second, you can choose to address these repairs and therefore have them removed from the scenario altogether.
3. Repairs: Buyers are turned off by long lists of needed repairs. This goes double for time-consuming and costly repairs, such as roof work or foundation issues. By identifying and addressing the issues, you may be able to yourself save time and money in the long run.
4. Organize Paperwork: There may be contracts or warranties you have on your home that will transfer to a new buyer. These can include appliances, builder warranties, and even contracts with lawn and pool companies there were paid up-front.
5. Talk to your lender: How much new home can you afford? Are you able to sell your home for enough to cover the remaining balance of the loan? These are important questions to get answered prior to listing!
6. Prepare for showings: Staging a home for sale has multiple different layers. First, you should clean and organize. Have carpets cleaned and repaint dirty or loudly colored walls. Next, remove large and bulky furniture, as these make rooms appear smaller. And finally, take down personal pictures, trophies, and memorabilia that could distract the buyer from what they are actually interested in ... your house!
But, before you do anything else, be sure to contact us as your local expert. We will take care of all of these tasks, and more.
Call us at 1-800 677-MOVE, or 598-3200
PRICING A HOME TO SELL
The most popular real estate slogan has always been "location, location, location." Well, folks, there's a new slogan in town, and his name is "price, price, price." You can have the most fabulous Colorado Springs house, but if you are overpriced, you won't sell in today's market.
Here are a few tips to steer you in the right direction.
Comparables: What are homes like yours selling for? Comparables can be found by analyzing homes in your neighborhood, or in nearby neighborhoods, that have similar square footage, upgrades, and amenities. If a comparable home sold for $150,000, there's little chance you'll find a buyer willing to pay $180,000 for your overpriced home. You always want to be the least expensive home in the neighborhood, when it comes to selling, not the most! Everybody loves a deal. We can help you find comparable info in your neighborhood (and remember, with comparables, neighborhoods make a big difference in price).
Be Competitive: Underpricing a home is a strategy that some agents employ to garner interest and to create a bidding war through multiple offers. A well-priced home is sure to get more showings than a home that costs more than the competition. More showings mean more exposure, which ups the chances of you receiving an offer.
Lender Communication: Lenders will only allow a buyer to borrow up to the amount a home appraises for. That means if you are overpriced, even an eager buyer may hit a lending road block.
How Bad You Need to Sell: This is the real kicker. Some homeowners want to sell, but they don't need to. That means they can wait out a down market, or even wait for the "perfect" buyer. If, however, you find yourself needing to move across town, or across the state, then you will have to be more willing in today's market to compromise. And compromise is all about price when it comes to real estate.
Buyers are savvy. Technology allows them to search the local MLS, research the latest trends, and even see how your neighborhood's prices have changed over the last 30 days. They will know if your home is overpriced. It is best to error on the side of too little than too much in this numbers game. If you price your home right, however, you're sure to find a ready and willing buyer.
Again, we, as your local expert, will be able to guide you through these steps and, in fact, will do these things, and many more, to help you get your home sold.
Call us at 1-800 677-MOVE, or 598-3200
WHAT ARE TODAY’S BUYERS LOOKING FOR?
According to the 2010 NAR survey of the profiles of Buyers and Sellers, the following list shows the level of importance that prospective Buyers assign to the houses they are considering:
- Price 18%
- Size 18%
- Condition of home 17%
- Distance from job 14%
- Size of lot 13%
- Distance from home/family 7%
- Quality of neighborhood 7%
- Quality of schools 3%
- Distance from schools 3%
Total 100%
The surprise for us ‘old-timers’ is that quality of neighborhood and schools were so far down the list. Looks like the ‘Dinks’ have taken over the market (Double-Income, No kids).
ARE YOU AN INVESTOR? MAYBE YOU SHOULD BE !!
One thing that surprised us at the recent convention of Leading real estate Companies of the World, in Las Vegas was that Realtors from all over the country reported a significant rise in the number of sales to Investors.
That probably shouldn’t come as a surprise, since our present market contains all of the factors that would look good to prospective Investors …Low prices, good interest rates and a huge pool of prospective renters.
If you’re interested in exploring the possibility of acquiring an investment property, give us a call. This could be the time for starting your empire.
And, please remember, I would be honored to serve as your Broker for all of your residential real estate needs. I want to help you, my reader, make the most prudent and accurate Real Estate business decision.
Also if you know of anyone who desires to buy or sell local real estate, or, who is moving in or out of the Pikes Peak region, remember that, with over 37 years of providing relocation and Real Estate services to clients throughout the country, I am uniquely qualified to assist them with the relocation process, including buying and/or selling their homes on both ends of their move. Please allow me to implement my negotiating skills on your behalf.
Just click on the icon at the top of this email to listen to my latest podcast. ….And, if you would like to learn more about our Job Loss Protection Program, or, about our CyberHomes Complete Market Analysis of a property, please contact us.
LATEST STATISTICS
Click here for the latest Sales and Listing statistics for the Pikes Peak area
JOKE OF THE WEEK
You have to be old enough to remember Abbott and Costello, and too old to REALLY understand computers, to fully appreciate this. For those of us who sometimes get flustered by our computers, please read on...
If Bud Abbott and Lou Costello were alive today, their infamous sketch, 'Who's on First?' might have turned out something like this:
COSTELLO CALLS TO BUY A COMPUTER FROM ABBOTT
ABBOTT: Super Duper computer store. Can I help you?
COSTELLO: Thanks I'm setting up an office in my den and I'm thinking about buying a computer.
ABBOTT: Mac?
COSTELLO: No, the name's Lou.
ABBOTT: Your computer?
COSTELLO: I don't own a computer. I want to buy one.
ABBOTT: Mac?
COSTELLO: I told you, my name's Lou.
ABBOTT: What about Windows?
COSTELLO: Why? Will it get stuffy in here?
ABBOTT: Do you want a computer with Windows?
COSTELLO: I don't know. What will I see when I look at the windows?
ABBOTT: Wallpaper.
COSTELLO: Never mind the windows. I need a computer and software.
ABBOTT: Software for Windows?
COSTELLO: No. On the computer! I need something I can use to write proposals, track expenses and run my business. What do you have?
ABBOTT: Office.
COSTELLO: Yeah, for my office. Can you recommend anything?
ABBOTT: I just did.
COSTELLO: You just did what?
ABBOTT: Recommend something.
COSTELLO: You recommended something?
ABBOTT: Yes.
COSTELLO: For my office?
ABBOTT: Yes.
COSTELLO: OK, what did you recommend for my office?
ABBOTT: Office.
COSTELLO: Yes, for my office!
ABBOTT: I recommend Office with Windows.
COSTELLO: I already have an office with windows! OK, let's just say I'm sitting at my computer and I want to type a proposal. What do I need?
ABBOTT: Word.
COSTELLO: What word?
ABBOTT: Word in Office.
COSTELLO: The only word in office is office.
ABBOTT: The Word in Office for Windows.
COSTELLO: Which word in office for windows?
ABBOTT: The Word you get when you click the blue 'W'.
COSTELLO: I'm going to click your blue 'w' if you don't start with some straight answers. What about financial bookkeeping? You have anything I can track my money with?
ABBOTT: Money.
COSTELLO: That's right. What do you have?
ABBOTT: Money.
COSTELLO: I need money to track my money?
ABBOTT: It comes bundled with your computer.
COSTELLO: What's bundled with my computer?
ABBOTT: Money.
COSTELLO: Money comes with my computer?
ABBOTT: Yes. No extra charge.
COSTELLO: I get a bundle of money with my computer? How much?
ABBOTT: One copy.
COSTELLO: Isn't it illegal to copy money?
ABBOTT: Microsoft gave us a license to copy Money.
COSTELLO: They can give you a license to copy money?
ABBOTT: Why not? THEY OWN IT!
(A few days later)
ABBOTT: Super Duper computer store. Can I help you?
COSTELLO: How do I turn my computer off?
ABBOTT: Click on 'START'..... ........
