By Katherine Tarbox, Senior Editor, REALTOR® Magazine
It took me some years to figure this out: The moment you take something for granted, you’ve lost it. I’ve had to learn this lesson enough times when it comes to the most important things such as health, relationships, jobs, and even homes. I think many people, sadly, had a fresh awakening about taking housing for granted as Hurricane Irene battered much of the East Coast this past weekend.
I've never seen grocey store aisles so bare, as people bought weeks worth of canned food to prepare for Hurricane Irene
I am scheduled to ride the Home Ownership Matters Bus for the next two weeks. I left for Connecticut on Friday to attend an event on Saturday. I knew that I was essentially flying to a hurricane to get stuck in it. I kind of liked the idea of having a front row seat for mother nature’s extremes.
Connecticut was declared a state of emergency Saturday morning and alas, they canceled the event. I immediately went into my version of survival mode and headed to the grocery store to stock up on water, batteries, a flashlight, and food. I learned that Pop Tarts were the most in-demand hurricane food and were sold out at both grocery stores I went to. My mother lived through Hurricane Gloria in 1983 and remembered that parts of Connecticut were without power for up to a month. I didn’t know what to expect. Continue reading »
By Robert Freedman, Senior Editor, REALTOR® Magazine
A group of academics writing in a New York Times opinion piece yesterday, “White Picket Fence? Not So Fast” (Aug. 17, 2011), call for a phasing out of Fannie Mae and Freddie Mac and ending the government support of home mortgages that flow through them. To their credit, Viral Acharya, Matthew Richardson, Stijn Van Nieuwerburgh, and Lawrence White say the phase-out should be gradual to “minimize the system-wide shock” that would follow if the secondary mortgage market were closed down overnight.
But the writers use figures and make logical inferences that cry out for more scrutiny.
First, they say the mortgage interest deduction costs the government more than $100 billion a year, and they cite the Congressional Joint Committee on Taxation saying MID costs $700 billion over five years. But as economists and academics will acknowledge, determining how much MID costs the government is as much art as science, because the number you come up with depends on the numbers you put into the calculation. And what those numbers are aren’t widely agreed upon.
John Weicher, FHA commissioner under President George W. Bush and the assistant secretary of policy development and research under the first President Bush, says MID costs are closer to $20 billion a year, and he’s not alone in saying that. Other academics put the number in that range. The reason? They use a calculation that factors in the changes of behavior among households if MID is curtailed or eliminated. The idea goes something like this: as MID shrinks, households put their money into other tax-saving assets. Continue reading »
By Robert Freedman, senior editor, REALTOR® Magazine
The contentious debt ceiling deal enacted into law earlier this week as the Budget Control Act of 2011 doesn’t say anything about what programs should be cut and how tax benefits might change, but because it puts lawmakers under the gun to find up to $2.4 trillion in deficit reduction, it’s likely the mortgage interest deduction and other federal commitments to housing will come under discussion.
The biggest risk to real estate comes in the second of the deal’s two-part deficit cutting mechanism. The first part requires about $920 billion in cuts in exchange for about the same amount in increased debt ceiling cap. That part happens quickly—as envisioned, before the end of the federal fiscal year, which is at the end of September. Because of that short time frame, it’s unlikely highly controversial matters like MID or the tax treatment of carried interest will get taken up.
But the second part of the deal, which requires up to $1.4 trillion in cuts in exchange for about $1.2 trillion in debt ceiling increase, will be a little riskier for real estate.
To be sure, there’s no requirement that any amount of deficit reduction come from tax changes. It’s thus entirely possible that all of the deficit reduction will come from cuts to discretionary spending programs and the military. Even Medicare might get cut. (Medicaid and Social Security are exempt.)
But it’s prudent to stay on top of the discussions as they happen, because MID will certainly make a tempting target. Estimates vary widely on how much MID costs the federal government in revenue each year. Upper estimates are around $80 billion, lower estimates are around $25 billion. The reason some estimates are so low is because of how people are expected to change their behavior if MID is modified. Some analysts say home owners will move lost MID tax savings into other types of tax savings, offsetting some or all of the gains the U.S. Treasury would have seen from changing the MID benefit.
On carried interest, which is of particular interest on the investment real estate side, certain income to the general partner in a real estate partnership is taxed at the capital gains rate. There are proposals floating around that would treat that income as ordinary income, increasing the tax burden. The carried-interest issue is mainly an issue for general partners in hedge funds, not real estate partnerships, so critics have made the case that proposed changes shouldn’t apply to real estate partnerships.
In any case, these are the kind of proposals that have a good chance of surfacing as lawmakers look for ways to reduce the deficit, so it’ll be important to stay on top of the news as Congress starts to act.
In the video above, NAR Director of Tax Policy Linda Goold talks about the potential impact of the debt ceiling law on real estate.
By Wendy Cole, Senior Editor, REALTOR Magazine®
Sustained job growth and improved access to capital are the two roadblocks to gettting the economy back on track, Rep. Wm. Lacy Clay, Jr. (D–Mo.) told the Equal Opportunity-Cultural Diversity Forum Tuesday at NAR’s 2011 Midyear Legislative Meetings. Since 2007, 8.4 million jobs have been lost, he said. “While 244,000 jobs were created last month, this country requires a good deal of momentun for the economy to prosper,” Clay said.
He implored attendees to “mobilize, organize and, in the words of social reformer Frederick Douglass agitate, agitate, agitate” to further the interests of the real estate industry. He concedes that proposed legislation to require home buyers to make 20 percent downpayments could be an “overreach” in an effort to counter lax standards that contributed to the housing downturn. Clay encouraged real estate pros to reach out to members of Congress to raise their concerns about issues that could adversely affect home ownership, including challenges to the MID, GSE reform, and the impact of short sales on credit scores.
By Brian Summerfield, Online Editor, REALTOR® Magazine
REALTOR® Magazine’s editors are in Washington, D.C., this week for the 2011 Midyear Legislative Meetings & Trade Expo. Here’s a high-level look at some of what we’ll be covering here at Speaking of Real Estate:
- An examination of the priorities and performance of Congress.
- Proposals to reform government-sponsored enterprises Fannie Mae and Freddie Mac.
- How to keep mortgage capital flowing.
- The REALTOR® Party Political Survival Initiative.
- The economic outlook for residential and commercial real estate.
Be sure to check in to this blog and check out our Daily News to get the latest reports and analyses coming out of Washington this week. And don’t forget to visit Midyear Live, which brings you a members-eye-view of this event.
By Robert Freedman, Senior Editor, REALTOR® Magazine
Take out the pocket calculator again?
Paul Starobin in his piece “Should Owning a Home Still Define the American Dream?” in the Spring 2011 issue of The Next Economy (a special supplement of the National Journal) asks us to consider whether it’s time to remove home ownership from the pedestal it’s occupied since the 1920s.
His piece is part of a growing genre of articles and TV stories questioning home ownership in the wake of the housing meltdown, probably the most well-known of which is a September 2010 piece in Time magazine called “The Case Against Homeownership” by Barbara Kiviat. These pieces have done much to encourage action by members of Congress who are predisposed to remove the federal government from anything having to do with home ownership. For these members of Congress, taking such action is their right and indeed their responsibility. But these anti-home ownership pieces occasionally rely on arguments that have long been picked apart by critics and shown to be misleading if not outright incorrect.
In Starobin’s piece, he uses two such flawed arguments. In the first, he compares the return on equity of home ownership unfavorably to the return we would get if we bought a basket of stocks that track the Standard & Poor’s 500 index. Drawing on an analysis from an economist at the University of Pennsylvania’s Wharton School, Starobin says the S&P 500 has averaged an 8 percent average return since 1976, adjusted for inflation. Home prices, by contrast, he says, have gone up just 1 percent a year since 1975, when adjusted for bubbles and dips. Starobin then asks us to compare the return one might get on a $20,000 investment. Although Starobin doesn’t do the math, his point is that a $20,000 down payment on a house would generate a return of 1 percent a year while that same $20,000, invested in the S&P 500 basket, would generate an 8 percent return. “The financial gain from owning [a home] is likely to be modest,” Starobin quotes the Wharton economist as saying. “There are lots better ways to accumulate the same amount of expected wealth that do not start off with [paying] a 6 percent fee to the broker.” Continue reading »
By Katherine Tarbox, Senior Editor, REALTOR® Magazine
A few of us from NAR have been travelling the country to follow the Home Ownership Matters Bus Tour as it visited in Chicago, Denver, and Portland and made stops along the way. I’ve documenting some of these events with video that we post on the Home Ownership Matters Web site.
The truth is, I wasn’t exactly sure what to expect. Would consumers understand the mortgage interest deduction (MID) is being threatened? Would they care about how Fannie and Freddie will be reformed? Do they understand how vital housing is to the U.S. and the economy? At REALTOR® Magazine, we don’t usually interview consumers, and so I wasn’t sure what I would hear. Continue reading »
By Katherine Tarbox, Senior Editor, REALTOR® Magazine
As the debate in Washington continues over tax reform, a noticeably concerned group of real estate professionals and association members attended the REALTORS® Town Hall at the Doubletree Hotel in Portland, Ore., to discuss the current real estate climate with 2011 NAR President Ron Phipps and NAR Vice President and Liaison to Government Affairs Vince Malta.
Top of mind for many in the audience was the new REALTOR® Party Political Survival Initiative. If approved at the Midyear Legislative Meetings in Washington, D.C., in May, a $40 NAR dues increase would be implemented to fund political advocacy across the country, with two-thirds of the money being directed to local and state associations.
Phipps reminded the audience that these policy funds were used to support six Democrat and five Republican candidates in the last election who strongly supported pro-home ownership policies, as well as lobbying efforts for the home buyer tax credit.
“Home ownership supports government, and we need to work with the government, both national and local, so that it continues to support home ownership,” Phipps said. He noted that 65 percent of those who take advantage of the MID credit earn less than $100,000 a year, and that this was not a benefit for the wealthy. He also stated that they would stand firm to not allow “carve-aways” at the credit, such as eliminating this deduction for second homes. Continue reading »
By Kelly Killian, Manager of Editorial Development, REALTOR.org
NAR received the following e-mail last week from a Washington-state REALTOR®, and it served as a thoughtful and important reminder of why we — and all of you — do what we do:
Dear Realtor.org,
I had a thought … I know for many years we had to fight to keep banks out of real estate and we, as an organization, spent a lot of money to hold them off. Given the events of the last five years, the mess with the mortgage companies and banks going out of business, I have tried to imagine if there weren’t any REALTORS® to fight that battle, how much worst this last 3-4 years could have been. I wanted to thank you for the work you do for our members and the spirit in which you do it for Americans and the fight for homeownership. I, for one, am proud to be a REALTOR® and gladly pay my dues to keep us all at work.
Indeed, working with Congress to keep banks out of the real-estate brokerage business, is just one of the very important policy accomplishments NAR and the many REALTOR® advocates and volunteers have achieved on behalf of all of our nearly 1.1 million members — and their clients.
Recently, NAR outlined some 50 key legislative and policy accomplishments in 2010 — just a portion of the work conducted on behalf of REALTORS® last year. Among the efforts that served to protect REALTORS®’ business interests, sustain residential and commercial housing opportunities, and eliminate barriers to credit were extending the closing-date requirement for the home buyer tax credit, ensuring the continued funding of the National Flood Insurance Program, and securing RESPA guidance from HUD.
And the work continues in 2011, with our efforts toward secondary-mortgage market reform, preserving the mortgage-interest deduction, and much more.
By Robert Freedman, Senior Editor, REALTOR® Magazine
The fiscal year 2012 budget that the Obama administration released yesterday would pare back most housing and community development programs, including jobs-rich community development block grants, implement a planned hike in the annual FHA mortgage insurance premium, and even take a third stab at a twice-rejected proposal to trim the value of itemized deductions, including the mortgage interest deduction, available to upper-income households.
The Obama administration's fiscal 2012 budget request
These are all important matters that will bear watching as lawmakers take up their budget resolution and decide which proposals to keep and which ones to scrap or modify. But one thing the budget doesn’t do is propose reducing the value of MID by changing it into a credit. That change to MID was one of the recommendations of the president’s bipartisan deficit reduction commission, which released its final report in December.
In fact, the deficit commission very much got short shrift in the budget proposal. Its signature recommendations, including scaling back entitlements by raising the age of Social Security beneficiaries, among other things, were left out, leaving those high-profile decisions for another day.
To be sure, the president’s budget wields a sharp knife when it comes to cuts. It proposes cuts to 200 programs, including the majority of the programs administered by the U.S. Department of Housing and Urban Development, which saw its budget cut by almost 3 percent. Most of the budget savings across the spectrum of government programs come from a five-year freeze on discretionary domestic spending (largely everything except military and entitlements), which is estimated to produce $400 million in savings. Continue reading »
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