Eye on Santa Fe

The Tax Cuts and Jobs Act – What it Means for Homeowners and Real Estate Professionals

The National Association of REALTORS® (NAR) worked throughout the tax reform process to preserve the existing tax benefits of homeownership and real estate investment, as well to ensure as many real estate professionals as possible would benefit from proposed tax cuts. Many of the changes reflected in the final bill were the result of the engagement of NAR and its members, not only in the last three months, but over several years.

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February 4, 2020

Impeachment and Viruses and the Fed

Just when we think we have enough factors to consider when analyzing the direction of the markets, we add just one more. At the end of January, we had the meeting of the Fed Reserve, a release of the measure of growth for the fourth quarter, and an Impeachment trial. Then we added a virus scare from China. We thought we would be importing and exporting more from China after the first leg of the trade deal was signed, but we don’t think we wanted viruses to be part of the package.

And just to make it a bit more interesting, this week we will have the first 2020 data in the form of the January jobs report. This could be information overload for the markets, or the markets may ignore it all and go along its merry way. After all, the markets have been very resilient over the past decade. Why not just go with the flow? Continued strong stock markets and low interest rates could keep the economy humming even as it slows.

As to the data, the GDP indicated that economic growth came in at 2.1% for the fourth quarter, which was right at expectations. This number will be subject to two revisions. The Fed did not surprise anyone by keeping rates the same and the markets would not be surprised if rates held steady all year–barring a change in the direction of the economy. Of course, we will get a glimpse of a possible change with the jobs report coming out on Friday. Let’s hope for no surprises.

Scott Robinson, Gateway Mortgage Group

REAL ESTATE NEWS

Home building in the 2010s was a story of the Long Recovery. After the Great Recession, the number of home builders declined significantly, and housing production was unable to meet buyer demand. This deficit of housing in the United States continues to exist because of persistent supply-side headwinds for builders, creating a critical housing affordability challenge for renters and homebuyers. Yet despite these challenges, residential construction is set to evolve and expand throughout the decade ahead. Between 2010 and the end of 2019, there were 6.8 million single-family housing starts. That total included: 1.53 million custom home building starts, 827,000 townhouses starts (single-family attached) and 300,000 single-family built-for-rent (SFBFR) starts. The last ten years have seen significant amounts of underbuilding compared to prior decades. In the previous five decades, single-family housing starts averaged between 9.3 million and 12.3 million starts. The reduced amount of single-family home construction over the last decade is even more striking when considering the U.S. population has continued to increase over time. Source: National Association of Home Builders

The value of all U.S. owner-occupied homes increased to a record $29.2 trillion in the third quarter, according to a Federal Reserve report known as the Flow of Funds. That was a gain of 4.2% from a year earlier, the slowest annualized increase since 2012. The collective value of U.S. homes is now 21% higher than the bubble peak reached in 2006. Once that bubble popped, it was a decade before values recovered to the same level. Interest rates tumbled through most of 2019 as the American economy showed signs of softening and investors worried about the fallout from trade wars. Lower rates support continued gains in home values, which are based on what comparable homes sell for, because cheaper financing means people shopping for homes qualify for higher-balance home loans and can bid more for properties they want. The Fed’s tally of home values for all U.S. residential real estate, whether occupied by homeowners or not, was $32.9 trillion, the report said. As home values rose in the first quarter, so did homeowner equity, meaning the worth of a home compared to its financing. American’s owned $18.7 trillion of their homes, giving them a 64% equity stake, the Fed report said. In 2017, the equity stake was 62.5%, the Fed data showed. Source: HousingWire

Parents want their children to own their own homes and will help them financially to achieve that goal. A survey by home co-investing firm Unison has found that 79% of parent homeowners believe it is important for their child/children to own a home and 18% of those with a millennial child has already helped them to become homeowners. More than 1 in 5 American homeowners has helped someone else – usually their own child – to buy a home with 16% assisting with a down payment while 6% have helped with the monthly payment. Many respondents may be helping someone buy a home because they were lucky enough to have help when they became first-time buyers; 22% said they received help with 19% getting help with the down payment and 4% with their monthly payment. This help was mostly from their parents. More than 1 in 10 respondents said that the best thing about owning a home was being able to leave it to their kids. Source: Unison

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