Three Myths Holding Back Buyers
Friday, September 7, 2018
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Tax Reform and Housing: A Reference Guide
Sunday, January 7, 2018
Tax Reform & Housing: A Reference Guide
- Disclaimer: This guide is not meant to be a resource for tax advice but instead a resource for basic information concerning only certain aspects of the new tax code and how they may impact the real estate market. You should get tax advice from your accountant or tax preparer who will explain how the entire tax code will affect your personal return.
This information comes immediately after the new tax code became law. Some of the information may be revised as the analysis of the new law evolves.
When the tax code was originally being overhauled by the House and the Senate, there were three major proposals being considered that would have substantially impacted the residential real estate market:
- Changing the requirements for the exclusion of gain on the sale of a principal residence
- The reduction on the limit of the Mortgage Interest Deduction (MID)
- The elimination of the State and Local Tax deduction (SALT) which includes property taxes
Let’s look how the tax code has evolved from the original proposal, and decipher what impact experts believe it may have on the housing market.
1. Exclusion of gain on sale of a principal residence
Original Proposal: Owners would need to live in their house for at least 5 out of the last 8 years to claim this exemption. Under the former tax framework, a typical owner, who has lived in their house for at least 2 years out of the last 5 years, would pay nothing in capital gain taxes if they sell the house.
The New Tax Code: No change. The “at least 2 years out of the last 5 years” requirement is unchanged.
Impact on the Market: None.
2. Mortgage Interest Deduction
Original Proposal: Reduce the limit on the mortgage interest deduction (MID) amount from $1,000,000 to $500,000.
The New Tax Code: Reduces limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. Current loans up to $1 million are grandfathered.
Impact on the Market: Assuming a 20% down payment, this reduction in the MID will impact buyers that are purchasing a home between the prices of $938,000 and $1,250,000. Any home under the lower price is still covered and any home over the higher price was not covered under the former tax code either.
What does that mean to the market? Experts disagree. Calculated Risk’s Bill McBride:
“I think the impact of reducing the MID from a maximum of $1 million in mortgage debt to $750 thousand in mortgage debt will have very little impact on the housing market.”
On the other hand, Capital Economics claims:
“The impact on expensive homes could be detrimental, with a limit on the mortgage interest deduction raising taxes for those that itemize.”
3. State and Local Taxes (SALT)
Original Proposal: The elimination of the state and local tax deduction (which includes property taxes).
The New Tax Code: Allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes.
Impact on the Market: Most experts agree that higher taxed regions will be impacted as homeowners in those communities now have a cap on these deductions.
Calculated Risk’s Bill McBride stated:
“SALT will have an impact on housing in some areas. Some people might choose to live in one state over another (if they have a choice), based on taxation. This could impact demand in certain states – especially for the middle and upper-middle class homeowners.”
Mark Zandi of Moody’s Analytics said:
“The impact on house prices is much greater for higher-priced homes, especially in parts of the country where incomes are higher and there are thus a disproportionate number of itemizers, and where homeowners have big mortgages and property tax bills.”
What will be the overall impact on the housing market?
For most of the country, the new tax code will not have a negative impact on the market. As Capital Economics reports:
“Given most households will see an overall tax cut, and potential buyers are likely to put that saving towards their home, we doubt it will have a significant detrimental impact on the housing market.”
There is also no doubt that some higher priced, higher taxed regions will be affected more than others. However, most experts agree that other portions of the tax code will favor the high-end buyer and seller, and this might mitigate many concerns. McBride explains:
“The corporate tax cuts (and other tax cuts) will mostly benefit the wealthy, and this will be a positive for high end real estate.”
What does this all mean to you?
To know for sure, you should sit with your accountant or financial planner and explore how all the aspects of the new code will impact your family.
Most families consider homeownership an essential part of the American Dream, and don’t purchase a home based solely on the tax advantages. The main reasons they buy a home are personal (they just got married, they are looking for a good place to raise children, they want to be near friends and family, they want to better enjoy their retirement, etc.). This will never change.
Looking at the new tax code, Mr. McBride’s opinion makes the most sense:
“There will be some negative impact based on SALT, but overall the impact of these policy changes on housing will be minimal.”
Appraiser Shortage Rocks Real Estate Sales on Mt. Hood
Sunday, November 20, 2016
Getting a mortgage these days is filled with massive amounts of documentation, strict regulations red tape and on top of that a huge shortage of appraisers in the Northwest. The further away from urban centers the more delays you will face! What once was a thirty to forty five day process is now becoming a sixty to ninety day process. Not only is the Mt. Hood area, only one hour from Portland, facing extended closings, if you're in Southern Oregon or at the coast you need to count on a ninety day closing.
I've had three transactions assigned to appraisers coming from the Bend area to get the work done for the loan! Portland's mass influx of new residents has shaken the mortgage process and most appraisers are looking for the short drive near PDX vs. the hour East to service Rhododendron, Welches and Brightwood and Government Camp. It's not just the Northwest though, appraisals are affecting all other areas of the country too. Part of the problem is the amount of education and training it takes to become an appraiser. The bar for entry is too high! Current costs of appraisals on the mountain run $600.00 plus. Many I've seen have reached the $700-$750 range. Add on the expedited appraisal fee and we are talking $900 plus.
The impact of the appraisal issue hits both buyers and sellers.
*Delayed closings are rampant!
*Buyers loose their lock on interest rates.
*Try to plan a move without knowing when the appraiser will take place.
*Excessive fees to buyers to "expedite" their appraisal.
Here are few articles I found online that discuss some of the issues and resolutions. Bottom line: if you want your house to close by June 1st and move into your new home by the beginning of summer, I suggest you get under contract by March to get that accomplished which changes the mind set of most buyers and sellers in the process. Currently we don't see any resolution to the problem in the near future so it's best to plan ahead.
Southern Oregon Appraisal Delays
Only eight appraisers in Clatsop County: Astoria, Oregon
The system is broken: Bend, Oregon
Distressed Sales Decline in the Mt. Hood Area
Monday, October 26, 2015
Take a look at the RMLS statistics for distressed sales over the past quarter in all areas. Bank owned sales are just down to under 6% and short sales at under 2%! So far in 2015 the Mt. Hood real estate market has seen a total of 6 bank owned and zero short sales up to this point. In 2014 that total hit the 18 with 15 bank owned and 3 short sales. The "shadow inventory" of distressed homes is shrinking by the month and heading for historic norms.
Septic Smart DEQ Program for Oregon Septics and Cesspools
Sunday, February 15, 2015
The DEQ department for the state of Oregon has developed a new program for homes with septic and cesspools called Septic Smart. It’s Septic Smart program is designed to educate buyers and sellers about proper septic care and maintenance.
Along with the DEQ’s new program, Septic Smart, the Oregon Real Estate division now requires a septic addendum within your real estate contract addressing septic and cesspool inspection requirements, if needed. This restricts who can do the septic inspections for a real estate transaction to designated Oregon state certified DEQ inspectors. An up to date list of inspectors can be obtained online at the Septic Smart website.
The Mt. Hood area probably has around 80% of its homes on a septic or cesspool.
Cabins located in the Mt. Hood National Forest require an upgrade at the time of sale for existing cabins served by cesspools. The septic upgrade process and time frame will be determined by the forest service on leased land cabins with severe restrictions on when and where any work may start or be completed.
These new DEQ requirements put septics and cesspools as a number one priority in a real estate transaction. There is a program at Clackamas County that provides low income grants and loans for septic repairs and other home repairs listed on their site.
Expect potential delays in a transaction if septic problems arise from these new requirements.
Roofs for Troops-Low Cost and Free Homes for Vets
Thursday, October 30, 2014
Have you ever heard for Roofs for Troops? This is a program that receives donated homes across the US to rehab in preparation for a Vet to either purchase the home at a huge discount or actually get a home for FREE. It's true. If you know of a Vet who needs a home, tell them about this program and visit the website at http://www.roofsfortroops.org to learn how the program works and how to apply.
Septic Tanks on Mt. Hood
Sunday, February 9, 2014
Septic tank replacement and installation is something we deal with on a regular basis on Mt. Hood. Many of our properties were built in the 1930s and 1940s so the time is coming where a tank replacement or system replacement is coming due.
Many of our cabins, including forest service cabins on leased lands, are used on a fairly limited basis. Some owners use their cabins every weekend and others once a month. It’s not unusual at all to find 300 gallon septic tanks used with older septic systems.
Today’s regulations have changed for septic tanks. DEQ requires new tanks to be at minimum 1000 gallon tanks. Check out the tank that was recently installed at one of my listings at the forest service.
It does look like it’s as big as the outbuilding!
If you’re interested in what the current standards for septic tank replacements are, check out the info Clackamas County is providing for 2014. Don’t forget, if you have a cabin in the Mt. Hood National Forest, your first step will be to contact the forest service and get permission first!
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