MarketNews October

From Otteau Group:

MarketNews October

After four consecutive months of increases, home purchase contracts in New Jersey were basically unchanged during the month of September, increasing by just 0.4%. This is compared to a 12% increase one year ago in September of 2016. Still, the number of purchase contracts last month was the most for the month of September since 2005, signaling continued high demand. Overall, home sales have increased in New Jersey by 5% y-t-d.

While the number of home sales has increased across all price ranges this year, the largest gain has occurred for luxury homes priced over $2.5-Million, rising by 14%, while homes priced under $600,000 have seen the smallest increases. It’s important to note that home sales in excess of $2.5-Million are increasing for the first time in more than a decade. The gains for more expensive homes is attributable to rising confidence among higher income households while slower growth in lower priced homes is the direct result of shrinking inventory.

Shifting to the supply side of the equation, the supply of homes being offered for sale remains constricted, which is limiting choices for home buyers. The number of homes being offered for sale today in New Jersey has fallen to the fewest of the past 12 years, having declined by 6,000 over the past year. This is also about 31,000 (-42%) fewer homes on the market compared to the cyclical high in 2011. Today’s unsold inventory equates to 4.7 months of sales (non-seasonally adjusted), which is lower than one year ago, when it was 5.4 months.

Currently, the majority (90%) of New Jersey’s 21 counties have less than 8.0 months of supply, which is a balance point for home prices. Hudson County continues to experience the strongest market conditions in the state with just 3.3 months of supply, followed by Middlesex, Essex, Union, Monmouth, Passaic, Bergen and Morris Counties, which all have fewer than 4.5 months of supply. The counties with the largest amount of unsold inventory (6 months or greater) are concentrated in the southern portion of the state including Cumberland (6.1), Cape May (6.8), Atlantic (7.5) and Salem (9.8), however, these counties are also beginning to exhibit strengthening conditions.

Posted in Economics, New Jersey Real Estate | 94 Comments

Home Builders turn against tax plan

From the Washington Post:

Home builders raise a hammer, try to smash the GOP tax bill

The Republican effort to overhaul the tax code suffered a bruising setback over the weekend when a powerful corporate interest group came out against the proposal just days ahead of House leaders’ planned release of the legislation to the public.

President Donald Trump and GOP leaders are casting the measure as a once-in-a-generation rewrite of the federal tax code, one they say will stimulate the economy, create millions of jobs and give voters a reason to stick with their party in next year’s midterm elections. Rep. Kevin Brady, R-Texas, the chairman of the House Ways and Means Committee, is scheduled to reveal the House version of the bill on Wednesday.

A discouraging clue emerged for House Republicans on Saturday, when the National Association of Home Builders came out against the bill after Brady informed the group’s chief executive about key details.

“We will do everything we can to defeat this thing,” said Jerry Howard, chief executive officer of the National Association of Home Builders.

For Trump and House Speaker Paul D. Ryan, R-Wis., the stakes couldn’t be higher. With the approach of the end of their first year controlling the White House and Congress, and the failure of health-care legislation still fresh, Republicans are desperate to post a win before next year’s midterm election cycle begins in earnest. By many of their own accounts, failure to pass tax legislation could lead to an electoral bloodbath, and the end of Ryan’s political career, in 2018.

Much of the pressure, and spotlight, will fall on Brady. A bare-pated, unfailingly sunny former Chamber of Commerce executive who is largely unknown outside of Washington after 20 years on Capitol Hill, Brady’s challenge is to build consensus while fellow Republican lawmakers, corporate lobbyists and perhaps even Trump himself pick the bill apart.

Howard said home builders like other parts of the tax plan, such as tax cuts for businesses and lower rates for many families. But he feared that other changes could tip the housing industry into a recession. He was particularly concerned about ideas to eliminate the federal deduction for state and local taxes and doubling the standard deduction, which could remove incentives for all but the “very wealthy” to deduct their mortgage interest – and have a chilling effect on homeownership.

After Brady communicated that the changes would not be made, top NAHB officials held an emergency conference call on Saturday and agreed unanimously to oppose the bill after months of reserving judgment, a spokesman for the organization said. Now, the group is preparing a public campaign against the bill, with plans to mobilize members in congressional districts across the country.

Posted in New Development, New Jersey Real Estate, Politics, Property Taxes | 138 Comments

Can small business thrive in NJ?

From the Star Ledger:

Which are the hottest counties in N.J. for new business?

Hank Sauce is made in small batches by hand, when the restaurant in Sea Isle City run by Josh Jaspan and his two former college roommates closes for the off season.

Soon, however, Jaspan, Matt Pattaluga, and Brian “Hank” Ruxton—a chef who created the hot sauce bearing his name, expect to open a production facility in Millville’s Urban Enterprise Zone with the help of a $695,000 loan backed by the Small Business Administration.

Jaspan, who said the money will provide working capital for their growing operation, said they faced limited options when they looked to finance their expansion.

“When it comes time to grow and all the options are on the table, you can give equity and give up part of your company to whoever wants to invest, or you can go to the bank and try to get a loan,” he said.

Jaspan had a lot of company this year. The SBA said it approved a record $869 million in loans to New Jersey small business owners in fiscal year 2017, which ended Sept. 30.

“We’ve reached out more, and the better economy has led to more spending,” said John Blackstock, the SBA’s New Jersey District deputy director.

Overall, the agency approved 2,326 loans, compared to 1,755 loans totaling $806 million in the last fiscal year. Officials said it was the first time since 2008 that the New Jersey office approved more than 2,000 loans.

He said 18 of 21 counties saw increases in the number of loans that were made. “It tells us our lending programs are making an impact,” said Blackstock.

Posted in Economics, New Development, New Jersey Real Estate | 54 Comments

Time to take a vacation … on the house!

From CNBC:

Home equity loans set to soar along with home prices

Ever since the epic housing crash of the last decade, homeowners have been incredibly conservative with their housing debt.

Home prices rose, at first slowly and now quite dramatically, yet owners held back on taking out all that new-found equity. That is about to change — by a lot.

About 10 million homeowners are expected to take out home equity lines of credit in the next four years, according to a new report from TransUnion.

That would be more than double the amount of originations between 2012 and 2016. This comes as the amount of available home equity has jumped to more than $13 trillion today from $6.3 trillion in 2011, the bottom of the last housing crash.

HELOCs, which are often loans after the primary mortgage, usually rise and fall along with home equity, but that didn’t happen following the recession. There was a significant pullback in lending, as banks considered the loans too risky and too difficult to originate, given the stricter underwriting guidelines that were implemented.

Some lenders got out of the business because there just wasn’t enough demand. Borrowers simply didn’t have the equity because home values had fallen so far. Even as values rose, borrowers didn’t rush in immediately.

Still, the demand will likely be there, as consumers use their home equity for several reasons. First, they will use it to repair and renovate their homes. With the housing supply so low, more homeowners are staying where they are, unable to find or afford a move-up home. Instead, they add on or upgrade what they have. Remodeling activity has been rising steadily and more dramatically this year.

“Recent strengthening of the U.S. economy, tight housing inventories, and healthy home equity gains are all working to boost home improvement activity,” Chris Herbert, managing director of the Joint Center for Housing Studies, wrote in a recent survey.

“Over the coming year, owners are projected to spend in excess of $330 billion on home upgrades and replacements, as well as routine maintenance,” Herbert said.

Posted in Economics, Mortgages, National Real Estate | 116 Comments

What the hell?

From HousingWire:

New home sales 10-year high baffles economists

After hitting a new low in August, new home sales surged in September to their fastest pace in the past decade, according to the latest report released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.

Sales of new single-family houses in September surged to a seasonally adjusted annual rate of 667,000 sales, the report showed. This is up a full 18.9% from 561,000 new home sales in August and up 17% from 570,000 sales in September 2016. The increase marked the fastest pace of home sales in 10 years.

This sudden increase came much to the shock of economists, who said September would likely see a slight drop in home sales.

“Expectations were for a modest decline in sales as the current sales component of the NAHB’s Housing Market Index slipped in September and purchase applications were down in the MBA’s mortgage applications survey for August,” Nationwide Chief Economist David Berson said, explaining applications tend to be an indicator of sales activity.

However unexpected the news, experts were thrilled, saying this is the news they’ve been waiting to here.

“Now this is the kind of new home sales activity we need and expect to be seeing, especially after what was a pretty weak and disappointing summer selling season made worse by a string of Hurricane disruptions,” Zillow Chief Economist Svenja Gudell said. “And upward revisions to initially reported summer numbers, however modest, only sweeten the news.”

Posted in Demographics, Economics, National Real Estate, New Development | 127 Comments

NJ’s MacArthur throws down the gauntlet

From CNN:

Republican group threatens to block budget over tax deduction fight

Threatening the GOP’s top priority of passing major tax reform, Republican Rep. Tom MacArthur warned Tuesday night that so many House Republicans are frustrated with plans to nix a popular deduction, they could block the budget this week.

“I haven’t done a whip count, but yes, I think there’s enough,” the New Jersey congressman told reporters.

Meanwhile, Republican leaders, who can afford to lose only 22 members of their caucus, are scrambling to find a solution that would get enough Republicans on board to move forward with the budget, which is considered the first step in tax reform.

The Republican tax reform framework proposes eliminating the State and Local Tax deduction (SALT), a popular tax break that affects nearly one-third of filers, letting them deduct levies like state income taxes and property taxes. It’s been in place since the birth of the federal income tax in 1913.

About 30 GOP members represent districts that heavily rely on the deduction, and if they stick together they could derail the resolution.

Republicans from high-tax states like New York, New Jersey, California and Illinois have been negotiating behind the scenes with Republican leaders, hoping to either preserve the deduction or find some sort of compromise.

With just days before the House votes on a budget, MacArthur said he’s disappointed by what he described as a lack of progress in the negotiations.

The lawmaker from New Jersey, which has the highest property tax in the country, is taking issue with language added to the Senate budget that targets deductions like SALT in order to help raise money for tax cuts.

“If the deductibility of SALT is just wholesale gone, I don’t think it can pass the House,” he said.

Posted in New Jersey Real Estate, Politics, Property Taxes | 70 Comments

Automation will reshape America

From MIT Technology Review:

In These Small Cities, AI Advances Could Be Costly

It’s long been clear that urbanization and automated technologies are shaping society, but it hasn’t been obvious how the two forces affect each other.

Until now, perhaps. A new study from MIT’s Media Lab posits that the smaller the city, the greater the impact it faces from automation. The finding, they say, could encourage legislators to pay special attention to workers in smaller cities and offer them support services.

Other researchers have attempted to measure the effect of technology on employment in cities, but the Media Lab authors, who have identified which jobs and skills tend to be more prevalent in smaller cities and larger ones, claim to be the first to explain why different U.S. cities are more susceptible (or resilient) to technological unemployment. (Though the authors did not define “small” and “large” in their paper, they say that cities with fewer than 100,000 inhabitants will experience more disruption.)

They say that bigger cities have a disproportionately large number of jobs for people who do cognitive and analytical tasks, such as software developers and financial analysts—occupations that are less likely to be disrupted by automation. Smaller cities have a disproportionate amount of routine clerical work, such as cashier and food service jobs, which are more susceptible.

The five U.S. metropolitan areas that are expected to experience the least job impact from automation are San Jose, Sunnyvale, and Santa Clara, California; Washington, D.C., and Arlington and Alexandria, Virginia; Trenton, New Jersey; Boston and Cambridge, Massachusetts; and Durham and Chapel Hill, North Carolina. All of those regions have large populations and high proportions of skilled technical and managerial occupations, particularly technology jobs. The metro areas deemed most at risk (among them Myrtle Beach, South Carolina; Elkhart County, Indiana; and Punta Gorda, Florida) rely on industries, such as agriculture and tourism, that have already been disrupted by technology and will probably continue to be.

“Big cities provide greater opportunities for synergies among creative, highly technical people, and that’s why they attract them,” explains Iyad Rahwan, an associate professor at MIT and the corresponding author of the paper. “The other dynamic is that cashiers and waiters are less idle in big cities than small cities, so large cities need fewer of them in proportion to their size.” As a result, he says, large cities have fewer routinized occupations that are more likely to be automated and relatively more technical and managerial occupations, which are less likely to be impacted by automation.

Posted in Demographics, Economics, Employment, National Real Estate | 139 Comments

If you can do it in Bergen?

From the Record:

Bergen towns can build affordable housing

Bergen County is recognized as one of the wealthiest counties in the country. Municipalities in the county helped secure this status by implementing exclusionary zoning practices that drove hard working families out of these towns – and by doing so, they helped create an affordable housing crisis. But we are on the precipice of change as more and more Bergen County towns are now taking proactive steps to expand fair housing opportunities.

The actions taken by these 14 towns will reverse decades’ worth of illegal zoning practices. These communities reached settlement agreements with advocates that will make affordable housing attainable for individuals and families that have previously been priced out. These agreements will result in the construction of hundreds of new homes for working families, seniors and people with disabilities.

They are joining more than 145 towns across the state who have signed fair-housing agreements to transition into an inclusive style of planning and zoning. Settlement talks with additional Bergen County municipalities are ongoing and should be announced in the coming months.

For example, Cresskill and Hillsdale are demonstrating how a municipality can partner with a nonprofit to build new affordable homes while leverage money from its local affordable housing trust fund and state and local sources to provide financing for new supportive housing options for people with disabilities.

Many of these municipalities – including Midland Park, Rochelle Park, Hillsdale, Cresskill and Ho-Ho-Kus – are working towards a significant amount of downtown redevelopment. These municipalities want to accomplish this through amending their zoning to allow residences over retail shops in downtown areas and encouraging redevelopment. These changes will help revitalize the community while expanding fair housing options for working families and people with disabilities.

An existing, developed site can be transitioned into housing without affecting a community’s green spaces. Areas such as former warehouses, office buildings and business sites are filled with opportunity. The properties can be brought back onto the tax rolls while functional properties replace vacant ones. These redevelopment projects are beneficial for the entire community.

Posted in Demographics, Economics, New Development, New Jersey Real Estate | 39 Comments

Unexpected increase in September Home Sales

From HousingWire:

Existing home sales reverse course, increase in September

After falling for three straight months, existing home sales reversed course in September, posting an increase, according to the latest report from the National Association of Realtors.

Total existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.7% in September to a seasonally adjusted annual rate of 5.39 million in September. This is up from 5.35 million in August.

This slight increase beat expectations which, according to one expert who served as Fannie Mae’s chief economist for more than 20 years, were expected to drop.

However, sales remain 1.5% below September 2016, and is the second lowest pace over the past year.

“Home sales in recent months remain at their lowest level of the year and are unable to break through, despite considerable buyer interest in most parts of the country,” NAR Chief Economist Lawrence Yun said. “Realtors this fall continue to say the primary impediments stifling sales growth are the same as they have been all year: not enough listings, especially at the lower end of the market, and fast-rising prices that are straining the budgets of prospective buyers.”

“Sales activity likely would have been somewhat stronger if not for the fact that parts of Texas and South Florida – hit by Hurricanes Harvey and Irma – saw temporary, but notable declines,” Yun said.

The median existing home price for all housing types increase 4.2% annually in September to $245,100, up from $235,200 last year. This marks the 67th straight month of annual home price increases.

Housing inventory saw relief as it rose 1.6% to 1.9 million existing homes for sale in September. But inventory remains 6.4% below last year’s 2.03 million homes, and has fallen annually for 28 consecutive months. Unsold inventory decreased to a 4.2-month supply at the current sales pace, down from 4.5 months last year.

Posted in Economics, National Real Estate | 27 Comments

NJ Republicans vote to increase your taxes

From the Star Ledger:

Senate Republicans just declared they want to kill your property tax deduction, New Jersey

Senate Republicans just voted in favor of killing your property tax deduction, New Jersey.

The GOP senators, whose states received $223 billion more from the federal government than their residents send to Washington, voted Thursday in favor of eliminating the state and local tax deduction.

The deduction helps mostly helps residents in states like New Jersey that pay more in federal taxes than they get back from D.C.

“It’s outrageous and patently unfair.” U.S. Sen. Cory Booker, D-N.J., said in an interview after the vote. “There has to be a fundamental principle of tax fairness, not just between low-income wage earners and high-income wage earners, but the tax fairness really has to be between the states as well.”

The amendment was approved primarily along party lines, 52-47, with U.S. Sen. Robert Menendez, D-N.J., absent because of his ongoing trial on federal corruption charges.

It was added to the Senate budget resolution, designed to trigger a parliamentary maneuver to block a filibuster and allow Republicans to exclude Democrats from negotiations on a tax bill.

The effort to end the deduction was led by U.S. Sen. Shelley Moore Capito, R-West Virginia, whose state in 2015 received $2.07 from Washington for every $1 in federal taxes paid, more than 47 other states, according to the Rockefeller Institute.

New Jersey, on the other hand, got just 74 cents back for each $1, lowest among the 50 states.

Lance, along with Reps. Frank LoBiondo, R-2nd Dist., and Chris Smith, R-4th Dist., broke with their party and voted against the House budget resolution. Only two New Jersey Republicans, Reps. Tom MacArthur, R-3rd Dist., and Rodney Frelinghuysen, R-11th Dist., supported it.

Posted in Housing Recovery, New Jersey Real Estate, Property Taxes | 116 Comments

Bet the letters stop now…

From the Star Ledger:

Judge throws out infamous Westfield ‘Watcher’ lawsuit

A Superior Court judge on Wednesday dismissed the remaining counts of a civil lawsuit involving the infamous “Watcher” house, ending years of litigation about the Westfield home that gained international attention for its apparent stalker.

Judge Camille M. Kenny threw out three counts of fraud in the civil lawsuit that claimed the home’s previous owners knew about an alleged stalker, who referred to himself in letters sent to the home as “The Watcher.” The sellers, the suit claimed, maliciously withheld the information from the new owners out of fear they would lose the house sale.

The judge said she dismissed the counts because there was no evidence the former owners, John and Andrea Woods, intentionally hid a letter they received from “The Watcher” from the new owners, Maria and Derek Broaddus.

The Broaddus couple, who have three children, bought the old Dutch Colonial house on Boulevard for $1.35 million in June 2014. Within the first two weeks, they received three letters from a writer who called himself “The Watcher,” claiming he had ownership and control of the house.

Days before the closing, the Woods received their first and only letter from “The Watcher.” Andrea Woods said she found the letter to be odd, not threatening, and threw it out in the process of moving out of the home, the judge said.

In her reason for dismissing the counts, Kenny said sustaining the complaint would have put a burden on future sellers to speculate about what they need to disclose to buyers. Since the Woods, who lived in the home for 23 years, received just one letter from the apparent stalker, longtime owners would have consider disclosing one-time issues with a neighbor, such as a loud party.

“We’d be putting uncertainty in real estate law,” she said.

Richard Kaplow, the Woods’ lawyer, said the judge made the right decision because state law requires owners to disclose physical elements associated with a property, not an off-site social condition, such as undesirable neighbors.

Posted in New Jersey Real Estate, Unrest | 69 Comments

Will big $$ make NJ more appealing?

From Bloomberg:

Christie Backs Newark’s Amazon Bid With $7 Billion in Tax Breaks

New Jersey Governor Chris Christie is seeking to deploy $7 billion in potential tax credits to lure Amazon.com Inc.’s planned second headquarters to Newark, which has been struggling to stage a broad economic revival since it was devastated by riots in 1967.

The proposal would offset state and city taxes, including an incentive through New Jersey’s Economic Development Authority that could reach $5 billion over 10 years, the governor’s office said Monday in a statement. The remainder of the tax breaks would come from a $1 billion city property tax abatement and a wage tax waiver of $1 billion for employees.

A reputation for crime and poverty has kept the state’s largest city, just 10 miles (16 kilometers) west of Manhattan, mostly on the sidelines of the urban revival that’s transformed swaths of blight into trendy neighborhoods across the U.S. In recent years, though, Prudential Financial Inc. has built a new office tower in Newark and has backed several real estate projects.

Seattle-based Amazon last month solicited proposals for the second headquarters, a project expected to cost more than $5 billion and create 50,000 jobs during the next 15 to 17 years. Politicians across the U.S. and Canada have eagerly expressed interest. Newark has competition from big cities such as Boston and Chicago and smaller markets including Tulsa, Oklahoma, and Memphis, Tennessee.

Posted in Economics, New Development, New Jersey Real Estate, Politics | 186 Comments

Homes shrink, but they are still bigger than 10 years ago

From Bloomberg:

Homes Are Shrinking in the U.S.

In a reversal of a three-decade trend, U.S. homebuilders are cutting the size of the American home as margins are being squeezed by a shortage of land and labor. The average floor area year to date of a new house is 2,420 square feet (225 square meters), down from a record high of 2,520 set in 2015, according to a Capital Economics Ltd. analysis of federal data. Before the decline, the typical size had grown by a third since 1990.

Posted in Economics, National Real Estate, New Development | 76 Comments

Albatross

From CNBC:

Boomers worry they can’t sell those big suburban homes when the time comes

Jeff Swaney is worried about selling his 5,600-square-foot home one day.

In his neighborhood south of Atlanta, demand and prices for large ranch houses like his ave declined over the last decade, as more young professionals move to smaller abodes in hipper areas. He doesn’t expect that to change anytime soon.

The 51-year-old real estate investor and owner of Swaney Consulting Group has personal reasons to hold on, at least for now. He may eventually move to a condo at the beach, but wants his future grandchildren to enjoy his pool, yard and basement. For these amenities, he spends about $18,000 annually in lawn maintenance, taxes, insurance and utilities alone.

The housing market, on the rebound since the Great Recession, is increasingly being driven by millennials and first-time homebuyers who “are hungry for starter homes and efficient layouts,” said Javier Vivas, manager of economic research for realtor.com.

The trend may leave some older homeowners in a lurch if they want to retire, downsize and cash in their nest egg.

Large single family homes — defined as the largest 25 percent of all listings on realtor.com and about 2,900 square feet to 4,000 square feet — receive 12 percent to 45 percent less views on realtor.com than the typical home in each market.

This year so far, large, single family homes are selling up to 73 percent (or 50 days) slower on average than the typical home in each market.

“The McMansions that soon-to-retire people purchased in the 80s and 90s are a very difficult sell right now,” said Melissa Rubenstein, a former real estate attorney who now sells luxury properties with Re/Max HomeTowne Realty in Bergen County, New Jersey. Many are outdated and may not include a first floor bedroom and bath suite for aging in place or in-laws.

Listings of large homes are also up two percent from last year, suggesting owners are dumping them faster, while listings of all homes are down 10 percent from last year, according to the realtor.com data.

“We’re finding these homes are an albatross for clients,” said Michael E. Chadwick, a financial planner and owner of Chadwick Financial Advisors in Unionville, Connecticut.

“We’ve got several right now who have been trying to sell them and move south, and they’ve cut the asking price by over 30 percent each and they’re still not going anywhere fast,” he said.

“People look at purchase price and sales price and think they’ve made a lot, but once you factor in repairs, maintenance, taxes, insurance, upgrades, renovations, they lose money most of the time,” Chadwick said.

“The taxes and insurance are outlandish. The younger generation doesn’t want to own or take care of these homes. It’s all about free time not being tied down to a property.”

Posted in Economics, National Real Estate | 39 Comments

Why Trump’s tax plan will make housing even more unaffordable

There appears to be some thought that home prices on the coasts are elevated or subsidized through the use of the Mortgage Interest deduction (MID) and State and Local Tax (SaLT) deductions. These two deductions, either alone or together, artificially increase the price of homes making them less affordable. Without the “subsidies”, prices would fall, increasing affordability, which is better for everyone (except the people that currently own the homes).

I would argue that this would not be the case, that eliminating SALT and MID would cause the opposite. Not because removing the deductions wouldn’t cause prices to fall, they would. But because removing SALT and MID right now, would cause a seize up in the housing market, further removing inventory from the market, reducing supply. This would likely be the unexpected consequence of eliminating those deductions. With home prices remaining at current levels, or even increasing as supply is restricted, along with the elimination of deductions – housing is now even less affordable.

Why?

If prices fell, owners would continue to sit on properties until values recovered. We are seeing this phenomenon across many real estate markets in the US. This shouldn’t be a surprise, we’ve only been talking about it for the past 5 years. Because values have not recovered, sellers either financially can’t sell the properties (under water, near negative equity, not enough equity to move), or psychologically (I’ll never sell it for less than it’s worth). In many regions we’re finally starting to see markets start to move again as values recover. Should prices stall, or fall, this impact of restricted supply will continue to impact the market for many more years (until prices recover).

For-purchase supply may also transition to for-rent supply as investors purchase more homes, due to the fact that corporate tax structure would favor corporate ownership of housing over individual ownership of housing. As investors purchase these homes and convert them to rentals, you further constrain housing inventory, pushing prices up as supply dwindles.

This would also create a strain on move-up buyers, causing them to remain in place as they now find that the marginal increase in housing costs to upgrade is no longer affordable or realistic, so now you have a large portion of owners who would have previously moved-up staying in place. You might also see a follow-on trend of expansion and renovation of existing housing stock in lieu of moving to a larger house. This has the overall negative effect of increasing the average cost of local housing stock (through renovation you turn a less expensive house into a more expensive house, that less expensive house is forever gone).

In places like NJ, where a very large portion of older/retired owners no longer have a mortgage and don’t claim the MID, these individuals would see no significant increase in housing costs that would cause them to sell their homes and downsize. This means a big chunk of current inventory does not see any precipitating factor to put their homes on the market. In fact, if the standard deduction increases, retirees might find it less expensive to remain in place, further amplifying the impact of reduced inventory.

We may also see an impact to increased rental prices as renters who don’t currently itemize see benefits of the increased standard deduction, this may manifest as increasing rental rates in areas with high rental demand. So, both sides of the affordability picture are impacted.

So there you have it, eliminate the MID and SALT, and housing becomes even more unaffordable. Believe me, the unintended consequence will prevail here. You cannot evaluate these types of scenarios as an either-or situation, even though logically you might want to. The problem is, the cat is already out of the bag, the deductions exist. You are not comparing two hypothetical situations, one with the deduction and one without, you are looking as a third situation, one where it existed, and now no longer exists – the outcome here will be very different than if it had never existed at all.

Elimination of these deductions without major short-term impacts would require removal of these at a slow, measured pace – for example, a 10 year phase-out based on income, with the income-based limits falling every year. I completely don’t understand why we have discussions involving broad changes rapid one-time events when we know that implementing these kinds of changes in a measured pace results in significantly easier to manage situations, without the risk of unintended consequence.

But hey, what do I know?

Posted in Economics, National Real Estate, Politics, Property Taxes | 124 Comments