New Year -- New Hope
It has been five years since the depth of the recession was upon us. For five years we have been recovering. The recovery has been painful and slow with many starts and stops. Yet, as we approach 2014 there seems to be more optimism regarding the status of the economy recovery and our future. Some of this optimism is rooted in facts and some of this optimism comes from sentiment.
First the facts. For the first time in five years, the real estate market participated and is contributing in the recovery. When homeowners feel wealthier because of rising home values, the entire economy benefits. It is no coincidence that the economy grew at stronger pace in each of the past four quarters--including a robust 4.1% growth rate in the third quarter. Employment growth has picked up and this job growth is picking up within a variety of sectors--including state and local governments -- which is a sector that was laying off tens of thousands just a few years ago.
About those feelings. For a long time we have been saying that this was a crisis of confidence. Confidence is a feeling. In general, we can see that consumer confidence is rising as the year draws to a close. There is even hope that Congress is starting to show stronger levels of bi-partisanship -- which is a good thing with the debt limit issue about to hit in the first quarter of 2014. Confidence allows people to make important decisions such as getting married and starting a family. Here is to a great New Year for all--and hoping the growth in good feelings continue for all of 2014!
Homebuilders are ramping up new-home construction at the fastest pace in more than five years, the Commerce Department reported. Construction of single-family homes and apartments in November rose to a seasonally adjusted annual rate of 1.09 million, a 23 percent increase over October’s pace. It marks the fastest pace since February 2008. Broken out, housing starts on single-family homes surged nearly 21 percent in November, the fastest rate since December 2007. Apartment construction jumped 26 percent. "Single-family and multifamily starts are at five-year highs, providing additional evidence that the recovery is here to stay," says David Crowe, chief economist for the National Association of Home Builders. "We hit a soft spot this fall when interest rates jumped and the government closed down, but rates still remain very affordable and pent-up demand is helping to boost the housing market. We expect a continued steady, gradual growth in starts and home sales in 2014." Meanwhile, overall permits — a gauge for future building activity — dropped 3 percent in November, mostly attributed to the volatility in apartment construction, the Commerce Department reports. Permits for single-family homes rose 2.1 percent. Source: NAMB
For one of the least productive congressional sessions in modern history, the final word about tax overhaul was entirely in character: Nothing's happening. But is that good or bad news for homeowners, buyers and small-scale real estate investors? A bit of both. When House Ways and Means Committee Chairman Dave Camp (R-Mich.) recently announced that not only will he not reveal the details of his long-awaited comprehensive tax overhaul bill this year but he also will not seek passage of a so-called extenders bill for expiring tax code benefits, it was a sweet and sour mix for real estate interests. Camp's big bill, which would attempt to lower individual and corporate income tax rates to a maximum of 25%, is expected to call for significant cutbacks in or elimination of prized real estate deductions for home loan interest, local property taxes and other write-offs to pay for lower marginal rates. With debate on major changes like these now pushed back well into 2014 — in the middle of a reelection year for Congress — homeownership advocates are at least moderately relieved. But there's a key negative here as well: The failure of tax writers to put together an extenders bill means that important expiring Internal Revenue Code provisions affecting large numbers of homeowners will lapse Dec. 31. Of special concern are relief from taxation on housing debt forgiveness by lenders in most states, plus current deductions for mortgage insurance premiums and energy-saving home improvements. On the plus side---the certain Senate proposals would also be put aside with the delay. Senate tax writers' proposals for real estate should be unsettling for anyone owning residential investment property, such as rental houses. The Senate proposal would terminate one of the oldest financial planning techniques used by real estate investors — tax-deferred exchanges under Section 1031 of the code. In a 1031 exchange, property owners can defer taxes indefinitely when they swap "like kind" investment real estate within specified time periods following IRS regulations. It also would sharply increase the depreciation period for residential investment real estate from the current 27.5 years to 43 years. Stretching out the depreciation schedule means investors would be able to write off less per year on their properties than at present. Source: Ken Harney, The Nations' Housing
Property taxes are an important source of revenue for city governments, but rates can vary substantially across the country. Property taxes make up about one quarter of home ownership costs over the median duration of ownership, according to a study by two researchers with the Urban-Brookings Tax Policy Center. The study’s authors—Benjamin H. Harris, policy director of the Hamilton Project, and Brian David Moore, a research assistant at the Urban-Brookings Tax Policy Center—note that several counties and states have tried to decrease the burden through homestead exemptions and other laws. But property taxes tend to make up a big part of local revenues. Indeed, property taxes comprise 34.6 percent of total local revenues the researchers note. Nationwide, 60 percent of counties in the country had an average tax burden between $500 and $1,500 per home owner. Home owners in about 13 percent of counties paid less on average, and 27 percent paid more. Only 3 percent of counties had average bills that were more than $4,000. Higher rates of property taxes are mostly found in the Northeast and parts of the Midwest, according to the researchers. On the other hand, 24 counties had average taxes below $250, with the majority of those counties located in Alabama or Louisiana. Source: Mortgage Daily News
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