tax

MID: Witnesses Say No Cuts Now

      On October 6, 2011, the Senate Finance Committee held another in a series of hearings on tax reform, this time focusing on housing incentives. Five witnesses testified from a variety of perspectives, but they were unanimous on one point: Now is not the time to make any changes to the mortgage interest deduction (MID). Witnesses included representatives from the Pulte Corporation (housing construction), the National Association of Home Builders (NAHB), retired Senator John Breaux (D-LA) and two academic economists.

      Senator Breaux advocated the approach that had been taken by the 2005 Bush Tax Reform Panel, recommending that the MID be gradually converted from a deduction to a 15% tax credit. Pulte and NAHB delivered the same message that NAR provided in a written statement: housing changes should be retained intact. Both economists believed that the MID should be reduced at some future time, but not presently. All five witnesses emphasized that the market is far too fragile and that any changes to housing incentives, especially MID, would cause greater instability and price declines.

      Almost all of the discussion during the Q&A period was about MID. A few references were made to second homes, but the witnesses emphasized that changes to MID for second homes would have serious jobs and revenue impact on second homes communities. NAR and NAHB noted the importance of the $250,000/$500,000 exclusion in written comments, but no Senator made any inquiry related to it. 

Read NAR's press release following the hearing and NAR's written submission.

       Homeowners in the Washington area can uncross their fingers -- 2011 is expected to be the best year for home prices the region has witnessed since the recession, with experts saying the area's market recovery will be tops in the nation.

       The region's relatively strong uptick in prices over the last year -- second in the nation -- gives analysts reason to believe the Washington market could see a 6.5 percent increase in home prices over the next 12 months, according to a new report by Clear Capital, which tracks real estate trends. It's the biggest increase the firm is predicting across the country.

       "D.C. prices are already going up for all homeowners who have purchased a home in last two years," said Alex Villacorta, senior statistician at Clear Capital. "So they are likely to see positive equity in that purchase."

       It's a different story, however, for those who bought a home at the height of the housing boom in the summer of 2006. The area's home prices on average are back to their 2004 levels, while houses in the rest of the nation are averaging prices closer to 2001 levels.

Annual price changes for 2011's top markets

       Strong employment and the relatively low percentage of bank-owned foreclosures on the market are two big factors that have contributed to the Washington area's ability to stay ahead of the curve, experts said. Roughly 15 percent of properties on the market in the region are bank-owned compared with more than 40 percent in other major markets, according to Clear Capital. Unemployment is a little more than half the national average of 9.8 percent.

       That helped propel Washington-area home prices in 2010 to a 5.3 percent increase, second only to Honolulu, where prices increased by 7.2 percent, according to the report.

       Meanwhile neighboring markets suffered significant declines. Prices in Richmond fell last year by more than 10 percent and Baltimore-area prices fell by more than 8 percent. Clear Capital expects both markets to see losses again this year.

       Nationally, prices fell by 4.1 percent in 2010. Much of it was because of the false boost the federal homebuyer tax credits gave the market during the first half of the year, which created a highly volatile atmosphere.

       "They probably did as much harm as they did good because the dramatic falloff of purchases ... seems to have had the effect of further depressing prices," Rick Sharga, executive vice president of foreclosure-tracking firm RealtyTrac, said last month.

       Real estate agents say it's a relief to hear the positive prediction for Washington -- but it's not surprising.

       "The average length of time a property stayed on the market once we got through the tax credit [has been] declining," said Joanne Darling, president of the Prince George's County Association of Realtors. "Properties are actually staying on market less than 90 days ... [whereas] at its worst, it was longer than six months."

       But location is key and real estate is highly local. Darling said she's seeing multiple offers on homes in places like Capitol Hill, Northwest D.C., Bethesda and Chevy Chase. But towns farther away from the city -- and where residents have to be more reliant on cars -- have been slow to come back, she said.

       The market volatility in 2010 created a shift toward rental properties, with potential buyers in the region being afraid to invest in a home that might continue to drop in value. But Villacorta said 2011 may see a shift back toward homeownership.

       "As rents start to increase, that could provide an opportunity for investors to come in and ... rent those properties back," he said. "That would drive prices up and that can swing the tide back into the favor of 'maybe it's a good time to buy.'"


Click Here for the Source of the Information.