Existing home sales hit 11 year high

Posted on December 21, 2017 by grim

From HousingWire:

Existing home sales surge past decade high

Existing home sales increased for the third straight month to their highest point in more than a decade, 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 5.6% from last month to 5.81 million sales in November, up from an upwardly revised 5.5 million sales in October. This represents an increase of 3.8% from last year and their strongest pace since December 2006.

“Faster economic growth in recent quarters, the booming stock market and continuous job gains are fueling substantial demand for buying a home as 2017 comes to an end,” NAR Chief Economist Lawrence Yun said.

An expert described the growing homebuyer demand as “unquenchable.”

“Strong home buying fundamentals such as low mortgage rates and robust job growth continue to drive unquenchable demand,” Trulia Senior Economist Cheryl Young said. “For the second month in a row in over 12 years, the share of inventory sold exceeded its pre-recession peak.”

“As evidenced by a subdued level of first-time buyers and increased share of cash buyers, move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month,” Yun said. “The odds of closing on a home are much better at the upper end of the market, where inventory conditions continue to be markedly better.”

However, one expert pointed out that this surge could be revised down in the coming months.

“November marked the third month in a row in which sales strongly beat expectations, showing strength despite an early Thanksgiving that might have otherwise delayed some closings and ushered in the start of the typically slower holiday season,” Zillow Senior Economist Aaron Terrazas said. “Much of the last month’s surge looks to have been driven by a big spike in sales of condos and co-ops, which may be revised down in coming months.”

Median home prices also increased, rising 5.8% from $234,400 in November 2016 to $248,000 in November this year. This marks the 69th straight month of annual increases.

Posted in Demographics, Economics, Housing Recovery, National Real Estate | 103 Comments

Give NJ even more money?

Posted on December 20, 2017 by grim

From NJBIZ:

New Jerseyans need to prepay real estate, local taxes before year’s end, say accountants

New tax reform laws could spur New Jerseyans – retirees in particular – to sell their homes and move into rental spaces, according to several local accountants.

That’s because a sweeping overhaul of the tax code currently being ironed out by House and Senate Republicans in the U.S. Congress would cap the deduction for property taxes at $10,000 and preserve the mortgage interest deduction only for existing mortgages and new purchases with mortgages of $500,000 or less.

That would be bad news for state residents, who already pay some of the highest property taxes in the country, and could exacerbate the population flight out of New Jersey. It could also prompt residents – particularly retired people who no longer have children in the state’s school system – to sell their homes in favor of rental properties.
…
Stuart Berger, a partner at Clifton-based Sax LLP and head of the firm’s real estate practice, said capping the deduction on property taxes may have a minimal effect on residents in other parts of the country, but will negatively impact New Jerseyans because of high property taxes and home ownership costs.

“I am concerned that if that real estate tax cap goes higher, it is going to further accelerate the moves out of New Jersey,” Berger told NJBIZ. “It might push some of the seniors who have lived in a community for years to sell their homes and move into a new rental property from that standpoint.”

Berger also said the new cap could discourage young people from seeking to purchase their first homes in the state.

“The flight to home ownership could be reduced,” he said. “In the past the young people who were stretching themselves out to buy a home always considered that they got a tax write off on mortgage interest. This could be a factor in whether they will consider home ownership.”
…
Jim Lawrence, a partner and CPA at Traphagen Financial Group in Oradell, agreed that residents should pay state and local taxes before the end of the year in order to get the current deductions, but said his firm is recommending to clients that they pay their estimated state taxes for the first quarter of 2018.

By doing so, residents would get a voucher for the first quarter before the new tax law kicks in, thereby allowing them to get a deduction on those taxes next year under 2017 tax laws.

“So the 2018 voucher is a new concept,” said Lawrence. “So the worst-case scenario is that no legislation goes through, but you’d still getting that deduction for first quarter of 2018. I don’t think there’s anything lost by doing it. We’re talking about $2,000 to $4,000 [in tax returns] that they might not ever see again,” he said.

Posted in New Jersey Real Estate, Politics, Property Taxes | 170 Comments

Hey Murphy – want to stick it to Trump?

Posted on December 19, 2017 by grim

From Bloomberg:

These Are the Tricks States May Use to Get Around the SALT Deduction

Exploiting tax loopholes is a sport associated with rich people and their fancy accountants. State governments may have to start getting fancy, too.

Republican Senate and House negotiators in Washington agreed last week on a $10,000 cap on state and local tax deductions, or SALT. In high-tax states, that’s bad news. Personal taxes are poised to rise for 13 percent of New Yorkers and 11 percent of California and New Jersey residents, according to an analysis by left-leaning Institute on Taxation and Economic Policy, conducted after the bill’s final details were announced.

Financial planners and law professors to the rescue. It’s possible, they say, to concoct workarounds, like replacing income tax with payroll tax, and turning state tax into charitable donations. Far-fetched? Perhaps. But tax experts are already formulating ways to stop the feds from grabbing more take-home pay from Californians, New Yorkers and New Jerseyans while folks across America buy boats with the money they save.

“There are many hundreds of billions of dollars on the table over the next decade,” said David Kamin, a New York University School of Law professor. “There’s a lot of incentive for states to shift into forms of taxation that remain deductible.”
…
One tactic: Allow residents to make charitable gifts to the state instead of paying income tax.

That would involve legislators encouraging residents to donate to, say, New Jersey (insert quip here), instead of paying income taxes. The self-interested philanthropists who took up the state on the offer would receive a state income-tax credit for the full amount of their gift, which would qualify for a federal deduction.

Wealthy taxpayers already use a similar ploy in 18 states that offer at least partial tax credits in return for donations to nonprofits that grant tuition vouchers to private and religious schools. It especially appeals to affluent filers who pay the alternative minimum tax, which doesn’t allow them to claim deductions for state and local levies.
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The charitable-gift gambit isn’t the only potential loophole. States could quit relying on income tax, paid by individuals, and switch to payroll taxes, levied on employers, according to a Dec. 7 report, “The Games People Play,” by a group of tax experts that includes Kamin and Shanske.

If employers pay the payroll tax and reduce employees’ salaries by the same amount, workers wouldn’t have to deduct anything and would wind up being paid the same amount. That would allow states to collect the same revenue while preserving individuals’ deductions on federal returns.
…
The tactics amount to a zero-sum game between state and federal governments. To the degree that statehouses succeed in clawing back part or all of their SALT deductions, federal tax collectors would miss out on revenue they’re depending on to fund the corporate tax cuts at the center of the overhaul plan.

“The question is,’’ Davis said, “how far are the states going to push the envelope?”

Posted in National Real Estate, New Jersey Real Estate, Politics, Property Taxes | 185 Comments

“No one gets creamed more than New Jersey from this tax bill”

Posted on December 18, 2017 by grim

From the NY Times:

In One New Jersey Town, Pending Tax Changes Create Anxiety

Politically speaking, Livingston is not the bluest of the suburbs surrounding New York City. But there are few places where people are feeling any more anxious about the potential impact of the federal tax bill proposed by Republican leaders in Washington.

“They’re crippling us,” said Walter Levine, who has lived in this New Jersey community since 1976.

As Mr. Levine sees it, Livingston, a fairly affluent town with a population of about 30,000, could become even less affordable as residents face rising tax bills and falling home values. They could be left with less disposable income to spend in the local stores, setting off a “domino effect” that could derail the town’s economy.

It is a dire forecast, but not a radical one. Livingston sits on the western edge of Essex County, which Moody’s Analytics, a company that provides economic research, placed at the top of its list of places whose housing markets would suffer the most under the Republicans’ plan. According to Moody’s, the tax proposal could carve as much as 10.5 percent off the projected value of homes in Essex County in two years. Six other New Jersey counties made the top 10 on Moody’s list.

Livingston’s Republican representative in Congress, Rodney Frelinghuysen, voted against the House version of the tax bill because, he said, of the “very negative impacts it would have on so many of my fellow New Jerseyans.”

In many ways, Livingston is a microcosm of all the forces that will collide in the heavily taxed towns that ring New York City when the proposed tax law takes effect. These are places that have drawn residents willing to stretch their budgets to cover big mortgages and high property taxes in exchange for good schools and a comfortable lifestyle, understanding that they could deduct their local levies and reduce their federal taxes. But the tax bill would radically alter that equation, forcing potentially painful choices in towns like Livingston. For some, the math just may not work anymore, driving them and their neighbors to reconsider the classic suburban dream.

“No one gets creamed more than New Jersey from this tax bill,” said Mark Zandi, chief economist for Moody’s Analytics. He said the state was particularly vulnerable because its homes are expensive, its property taxes are the highest in the nation and it also has a high state income tax.

Posted in Economics, National Real Estate, New Jersey Real Estate, Politics | 126 Comments

“We’ve been subsidizing debt”

Posted on December 17, 2017 by grim

From the NYT:

Homeowners Have Had It Good. Too Good, Says the Tax Bill.

For decades, the tax code has been filled with rewards for homeownership. Tax breaks encourage people to get into first homes and to trade up as they get older, building a national mind-set that you’re never quite middle class until you’ve qualified for a mortgage.

It amounts to a vast social engineering project that assumes society is better off with owners instead of renters. But the tax bill making its way toward final passage is upending that premise.

The bill will increase many homeowners’ monthly housing costs by scaling back deductions that allow them to reduce mortgage interest and property taxes. And by roughly doubling the standard deduction, it reduces the incentive to buy homes by making far fewer homeowners eligible for preferential tax treatment.

Today, a little under half of American homes are worth enough to justify itemizing mortgage interest and property taxes. Under the tax legislation, that figure would fall to close to 14 percent, according to an analysis of the plan by the online real estate marketplace Zillow.

The Republican plan, in short, is tinkering with subsidies so entrenched in the social fabric that they have become entitlements in all but name.

“It suggests a limit in the federal government’s willingness to subsidize ownership,” said Edward Glaeser, an economist at Harvard. “It’s also a reflection of just how expensive housing has become, and how it feels problematic to be using the tax code to support people buying houses that are this expensive or, even worse, to be encouraging housing prices to rise further.”

Both parties have long championed homeownership as a way to help people build wealth and keep neighborhoods more stable. But economists like Mr. Glaeser have been critical of the resulting subsidies.

In their view, the government has made homeownership and its financing artificially cheap through the tax code and mortgage backers like Fannie Mae. As a result, people are encouraged to take on more debt than they might otherwise — to buy bigger homes and second homes, and to plow the equity they accrue into renovations and personal spending.

This distorts the economy in a number of ways. For starters, it’s unfair: Since the benefits of these deductions get bigger with larger and more expensive homes, the bulk of the benefits accrue to wealthier homeowners in pricier markets. This alters the landscape by encouraging more single-family homes and suburban sprawl. That, in turn, prompts the government to spend more on roads and infrastructure and makes housing a bigger portion of the economy than it would be in the absence of federal help.
…
All this has made homeowner subsidies, in particular the mortgage interest deduction, one of the rare tax breaks with critics across the political spectrum. Matthew Desmond, a Princeton sociologist who studies how eviction wreaks havoc on the lives on the poor, has documented how the deduction became the “engine of American inequality” because it favors higher-income homeowners.

Edward J. Pinto, co-director of the conservative American Enterprise Institute’s Center for Housing Markets and Finance, has described the interest deduction and other homeowner subsidies as a wasteful giveaway that inflates home prices and encourages people to borrow excessively.

“My basic view is if you subsidize something you’ll get more of it, and as a country we’ve been subsidizing debt,” he said.

Posted in Economics, National Real Estate, Politics | 24 Comments

Do or die time

Posted on December 15, 2017 by grim

From NJBIZ:

NJ’s challenged suburban economy is now in crisis courtesy of Congress

New Jersey is the most suburban state in the nation, which means plenty of malls and office parks. Not too long ago these properties helped make New Jersey the most prosperous of the 50 states.

That is no longer the case and is made far worse by Congress final tax deal which would allow taxpayers to choose a property tax deduction or a deduction for state and local income taxes, up to $10,000 in either case, according to media reports Wednesday.

This creates an existential crisis for many suburban communities that too many elected officials are not prepared to remedy. In fact, dozens of New Jersey suburban towns are now facing a perfect storm that will likely lead to significant property tax increases and reduced property values at the same, time unless mayors and state leaders take action soon.

Here’s the reality of New Jersey’s pending stagflation: Rapidly emptying suburban office parks are going the way of dinosaurs unless they are reimagined. Left unchanged, each of these formerly hefty taxpayers are going to win tax appeals that will have to be absorbed by homeowners. At the same time, thanks to Congressional Republicans, what homeowners are able to deduct will shrink meaning significantly higher federal and local tax payments.

Take a couple living in a suburban home valued at $650,000. Right now, they are paying about $16,500 in property tax, which they can fully deduct. However, the town’s largest taxpayer — an office park — is facing huge vacancies and wants to reimagine the property into a live, work and play environment. Approvals have not been forthcoming which means a successful tax appeal is inevitable. Once obtained to maintain existing services, the town’s governing body will need to increase taxes on other properties, primarily homeowners, so the couple’s property tax would increase to about $18,500. Without the ability to deduct they are now losing tax benefits of $8,500, possibly making their home unaffordable. And that will go for everyone on their block and everyone in their town.

New Jersey already has the largest outmigration of any state. With so many people looking to leave their town — and many other suburban towns with similar issues — what will that due to property values? The answer is obvious.

If ever there was a time for bold leadership in Trenton this is it. As New Jerseyans, we all want to help Gov.-elect Phil Murphy’s administration find a statewide zoning solution to allow office parks to be reimagined. It might be the only way to maintain property values and avoid a draining stagflation tragically unique to our state.

Posted in Demographics, Economics, Employment, New Development, New Jersey Real Estate, Property Taxes | 107 Comments

Trump vs the Fed

Posted on December 14, 2017 by grim

From the NY Times:

Fed Predicts Modest Economic Growth From Tax Cut

The Federal Reserve, buoyed by a steadily strengthening economy, raised interest rates on Wednesday for a fifth time since the financial crisis and predicted that a proposed tax cut moving through Congress would modestly increase economic growth for the next few years without stoking inflation.

As a result, the Fed said it did not expect the legislation, which President Trump has called “rocket fuel” for the economy, to accelerate the Fed’s plans to raise interest rates in 2018 and indicated it remains on track for three rate increases next year.

The Fed’s highly anticipated economic assessment, delivered after a two-day meeting of its policymaking committee, amounted to a lukewarm endorsement of the Trump administration’s top economic priority. Mr. Trump has suggested that the $1.5 trillion tax cut could nearly double economic growth to as much as 6 percent, a level far greater than most economists think likely.

“My colleagues and I are in line with the general expectation among most economists,” said Janet L. Yellen, the Fed’s chairwoman. She said they expected the bill to provide “a modest lift.”

Ms. Yellen spoke at a news conference after the Fed announced a widely expected decision to increase its benchmark interest rate by a quarter of a percentage point, to a range of 1.25 percent to 1.5 percent. The increase continues the Fed’s gradual march toward higher rates, which were cut to near-zero during the financial crisis. Wednesday’s increase is the third time this year that the Fed has raised rates, reflecting its confidence that the economy is in good health.

The Fed and Congress are moving in opposite directions. The Fed, in raising rates, is reducing the support it has provided to the economy since the financial crisis. Congressional Republicans, meanwhile, are preparing a $1.5 trillion tax cut for businesses and individuals with the aim of stimulating economic growth.

Some Fed officials, including Ms. Yellen, cautioned earlier this year that tax cuts could push the pace of growth to an unsustainable level, resulting in higher inflation, and that the Fed might respond by raising interest rates more quickly, to restrain growth and keep a lid on inflation.

After seeing the details of the tax plan, however, Fed officials have concluded that there is no need to raise rates more quickly. A quarterly update of the Fed’s economic forecast showed that officials still expect to raise rates three times next year — unchanged from the last economic forecast.

“We continue to think that a gradual path of rate increases remains appropriate even with almost all participants factoring in their assessment of the tax policy,” Ms. Yellen said on Wednesday.

In part, the Fed has concluded the tax plan doesn’t pack a large punch. Fed officials predicted that the economy would grow at a 2.5 percent pace next year; the previous forecast was 2.1 percent.

President Trump has predicted that the tax plan could deliver 4 percent growth or more.

Apprised of those comments by a reporter, Ms. Yellen responded: “I wouldn’t want to rule anything out. It is challenging, however, to achieve growth of the levels that you mentioned.”

Posted in Economics, National Real Estate, Politics | 33 Comments

NY Mortgages Worse Than NJ

Posted on December 13, 2017 by grim

From CoreLogic’s December Loan Performance Insights:

NY has finally taken the overtaken NJ in mortgage delinquency stats, something I’ve been talking about for months. This is primarily being driven by distressed loan performance improving in NJ, and not delinquencies growing in NY.

NY vs NJ
30 Day Delinquency: 7.1 vs 7.0
Serious Delinquency Rate: 3.9 vs 3.8
Foreclosure Rate: 2.0 vs 1.7

NY and NJ are no longer the #1 and #2 spots nationally across all metrics, 30 day delinquency rates are increasing in a number of states. Florida has jumped to 7.5%, Louisiana to 8.2%, Mississippi to 8.7%. Even Texas is on the verge of jumping into the top 10 with a 30 day rate of 6.8%. The Florida/Texas activity is largely storm related, and this was expected.

If the current rate of improvement holds for NJ, in a year we will be better than the national average on all metrics. With noting, NJ is now resolving mortgage problems faster than any other state, too bad we weren’t at this same pace 3 years ago.

Posted in Demographics, Economics, Mortgages, New Jersey Real Estate, Risky Lending | 76 Comments

Silly Valley

Posted on December 12, 2017 by grim

From the Star Ledger:

Assembly speaker-elect: We can make N.J. the new Silicon Valley

They all came from the same place — the transistors that powered radio to the digital cellular that powers our smartphones, fiber optics to LCD technology, groundbreaking computer programming language to the now ever-present barcoding.

Surely these historic technological breakthroughs came from Silicon Valley, right?

No.

They were all born right here in New Jersey.

That legacy of innovation and invention should be resulting in an economy that is helping lead the nation in job creation and economic growth. But despite being the place where numerous advanced technologies were created, New Jersey has more work to do to meet the challenges and opportunities of the global marketplace.

If we’re to bolster and strengthen New Jersey’s middle class, we must foster the creation of high-quality jobs that can sustain a knowledge-based economy thriving on innovation and entrepreneurship. If we’re to build a stronger economy that benefits everyone, New Jersey must capitalize on its competitive advantage through initiatives that support the state’s world-class academic institutes and science and technology industries.

That’s why finding new and innovative ways to help working middle-class New Jerseyans and to grow our economy will be a top priority when I have the honor of becoming the next New Jersey General Assembly speaker in January.

I will establish a new standing committee — the Science, Innovation and Technology Committee — that will create and advance legislation designed to put New Jersey at the forefront of emerging industries. We will utilize our universities, high schools and business leaders to harness innovative thought. We will strengthen relationships between industrial and academic research. We will find ways to transfer academic research to the marketplace, all while encouraging entrepreneurship and new enterprises in science and new technology.

Posted in Demographics, Economics, New Development, New Jersey Real Estate | 104 Comments

On the bright side, it’ll be so affordable nobody will want to leave

Posted on December 11, 2017 by grim

From the Philly Inquirer:

‘It’s going to make it more expensive to live here’: Why N.J., Pa. might face housing blow under GOP tax bill

Usually, Tom Bracken said, he would do cartwheels over a plan to cut corporate taxes.

Instead, this week the president of the New Jersey Chamber of Commerce blasted the Republican tax plan now nearing the finish line, saying it would harm property values in the Garden State and discourage quality workers from moving there.

“It’s going to make it more expensive to live here,” Bracken said on a media call.

He and other critics, including the New Jersey Business and Industry Association — which also said the plan “will negatively impact property values” — worry about the plan’s ripple effects on housing due to proposed limitations on valuable deductions for mortgage interest and state and local taxes. Those changes, critics argue, could also squeeze local governments that rely on local taxes to fund schools and services.

“New Jersey’s going to feel this pretty significantly,” said Dave Jones, a tax and real estate expert at Temple’s Fox School of Business.

Kevin Gillen, an economist at the Lindy Institute at Drexel University, said homeowners in South Jersey would be more affected than those in Pennsylvania. The Jersey Shore, in particular, could take a hit because the property-tax deduction could be eliminated for second homes, and the Shore has some of the most expensive houses in the region.

“I don’t think it will affect homeownership so much as it will affect home prices,” he said. “You’re not willing to pay as much for a home as you would otherwise.”

Democrats and Realtors said alarm bells should still sound in suburbs outside Philadelphia, where home prices and property taxes can also be high.

“If you have a home in a middle- or upper-middle-class area [around] Philadelphia right now, under this GOP tax plan, you’re at risk of seeing a drop in your home value,” said Rep. Brendan Boyle (D., Pa.), whose district is split between Northeast Philadelphia and suburban Montgomery County.

Jamie Ridge, president of the Suburban Realtors Alliance, which represents Realtors from Montgomery, Chester, Bucks, and Delaware Counties, said his members “are extremely concerned.”

“Most of the time when you’re trying to determine what a family can afford, the mortgage interest deduction and state and local property taxes and state and local income taxes all play into that,” Ridge said.

Posted in Demographics, Economics, New Jersey Real Estate, Philly, Politics | 95 Comments

Where’s our pork?

Posted on December 8, 2017 by grim

From the NYT:

On Tax Bill, It’s Trump vs. His Hometown

When President Trump returned to his hometown on Saturday for a day of fund-raisers, his third and final check-collecting stop was the Park Avenue home of Stephen A. Schwarzman, where the crowd included some of Mr. Trump’s old New York friends and real estate colleagues.

Some in the group, including Mr. Schwarzman, a founder of the private equity Blackstone Group, have been among those pushing the Trump administration to change the Republican tax package that is making its way through Congress — in particular to save the ability to deduct state and local taxes from federal returns.

Richard LeFrak, a developer and longtime friend of Mr. Trump’s who has been among those lobbying, asked about what changes the president wanted to see.

“LeFrak always has a question,” Mr. Trump mocked.

Mr. Trump was vague in his response, giving some in the room the impression he was open to their concerns. Others were less certain. And Mr. Trump concluded by poking fun at his wealthy supporters’ complaints. “You guys seem to be doing O.K.,” he said dryly.

While Mr. Trump has tried to sell the tax package as a giant tax break for all Americans, a different story is unfolding in New York and other high-tax, mostly Democratic states. The mayor of New York City, Bill de Blasio, has estimated that there could be tax increases for as many as 700,000 residents if the legislation is approved. Nearly half of households in surrounding suburban counties itemize their deductions — and stand to lose valuable write-offs of state and local taxes on their federal returns.
…
The fact that Mr. Trump’s tax package would economically hamper his hometown is unusual.

It is almost unimaginable that President George W. Bush would have championed a bill that would have harmed Texas relative to other states, or for President Barack Obama to have embraced legislation that took a particular bite out of his birth state, Hawaii, or adopted hometown, Chicago.

“It’s hard to think of a president whose signature legislation will fall, in a very negative way, on people in his home state,” said Julian E. Zelizer, a presidential historian and professor of history at Princeton. “Usually you bring back the pork.”

Posted in NYC, Politics | 90 Comments

Great time to buy a house … again

Posted on December 7, 2017 by grim

From Bloomberg:

Housing Market’s Comeback Is Poised to Accelerate

Housing was the epicenter of the last recession. From the peak in 2005 to the end of the contraction in mid-2009, U.S. residential investment declined at an unprecedented rate of about 20 percent a year. In normal business cycles, sectors that overshoot to the downside tend to rebound sharply. Given the significant oversupply of homes and tightening of credit, housing enjoyed no such recovery. Residential investment was essentially flat for almost two years after the recession ended. Since then, a slow recovery has been underway and we suspect the housing market will pick up in the year ahead.

Although residential investment has been expanding since 2011, recent growth has been sluggish, rising just 1.1 percent over the last year, compared with about 7 percent in the two previous years. Some of this weakness can be attributed to a housing market in transition: Owner-occupied real estate is recovering as renter-occupied real estate is declining. Also, multi-family construction is ebbing as single-family building picks up. With inventories tight, home resales appear to have flattened out as new home sales take a greater share. In other words, conditions in the U.S. housing market are normalizing. That’s a good thing.

There are good reasons to expect residential investment to pick up after sluggish growth this year.

Consumer attitudes are strong, supporting housing demand. It helps that general economic conditions have improved. According to the latest University of Michigan Survey, more people say now is a good time to buy a home because of “prosperous times.” This is a notable difference from the bubble period of 2005-06 and suggests a recovery built on firmer ground.

More respondents say now is a good time to buy a home because “prices won’t come down” and because it’s a “good investment.” Price expectations matter. The improvement in household buying attitudes, helps keep user costs low. In a standard user cost of housing model, the expected value of the home offsets maintenance costs such as mortgage interest and property taxes and depreciation. No one wants to finance an asset class they believe will go down in value. Thus, it is welcome that consumers see housing as a solid investment once again.

Posted in Demographics, Economics, Housing Recovery, National Real Estate | 78 Comments

Sorry about your home prices

Posted on December 5, 2017 by grim

From the NY Times:

How New Yorkers Would Lose Under the Republican Tax Bill

The tax bill approved by the Senate is many things, offering a huge tax cut for corporations, lower rates for the wealthy, and a big victory for Republicans and the White House.

It is also an economic dagger aimed at high-tax, high-cost and generally Democratic-leaning areas — most notably New York City and its neighbors.

The bill, if enacted into law, could send home prices tumbling 10 percent or more in parts of the New York area, according to one economic analysis. It could increase the regional tax burden, complicating companies’ efforts to attract skilled workers. It could make it harder for state and local governments to pay for upgrades to the transit system and other infrastructure. And it could force cuts in federal programs that help immigrants, the elderly and other low-income residents afford the region’s high cost of living.

Most significantly, the bill would eliminate the deduction for state and local income taxes, and would cap the deduction for property taxes at $10,000.

That wouldn’t matter to the more than two-thirds of households nationwide that take the standard deduction, which would be nearly doubled under the bill. But in the New York area, high state and local taxes change the equation. In Manhattan and wealthy suburban counties, close to half of households itemize their deductions, and many could see an immediate tax increase.

“We’re worried and we’re wondering what are we going to tell our kids,” said Cynthia Metcalf, who lives with her husband and the youngest of their four children in Mount Kisco, an affluent commuter town. “I just feel like it’s an attack deliberately set against people from the Northeast or from other blue states.”

Ms. Metcalf, who teaches history at Westchester Community College, said she had tried to use TurboTax software to estimate how their tax returns would be affected. Currently, they can deduct the more than $20,000 a year they pay in school and town taxes, and the 7 percent of their income that goes to state taxes. Losing those deductions means the family could wind up paying considerably more, Ms. Metcalf said.

That prospect has the Metcalfs rethinking their financial future. Ms. Metcalf said she dreaded the prospect of telling her youngest child, Genevieve, a high school senior, that the college of her choice was beyond their means. And she said she and her husband might have to accelerate plans to relocate once all their children have left home. Then again, she added, selling their home could become more difficult.

“Now I’m starting to think, who’s going to want to buy our house here in New York?” Ms. Metcalf said. “The whole game has shifted.”
…
The most immediate threat could be to the region’s housing market. The tax bill would eliminate or make less valuable the tax breaks that encourage homeownership. That would probably have a minor impact on home prices nationally, but potentially a big one in the New York area, with its expensive homes and high property taxes.

An analysis of the Senate bill by Moody’s Analytics concluded that home prices in Manhattan could fall nearly 10 percent in the coming years because of the bill. Some New York and New Jersey suburbs could be even more vulnerable because property-tax rates are higher there and prices are still recovering from the bursting of the housing bubble.

Posted in New Jersey Real Estate, NYC, Politics | 265 Comments

MacArthur a hero for NJ, or not?

Posted on December 4, 2017 by grim

From the Washington Post:

The GOP’s $10,000 cap on property tax deductions and how it affects one congressional district

“According to data direct from the IRS, allowing property tax deductions up to $10,000 — which I fought for and won — will cover nearly every taxpayer in the Third Congressional District.”
— Rep. Tom MacArthur (R-N.J.), in an opinion article, Nov. 18, 2017

A key feature of the House and Senate tax bills is ending the deduction for local and state taxes, which has been a feature of the U.S. tax code dating back to the Civil War. Republican leaders have argued that the low-tax states are subsidizing the high-tax states because the taxpayers in those states can’t deduct as much from their taxes. Indeed, six states — California, New York, New Jersey, Illinois, Texas and Pennsylvania — claim more than half of the value of all state and local tax deductions nationwide, according to IRS data. In the tax trade, the deduction is known as the SALT deduction.

But this had been a problem for Republican lawmakers from those states, as it means that at least some of their constituents might face higher taxes. During deliberations in the House, MacArthur won a compromise that would allow as much as $10,000 in property taxes to continue to be deducted. (A similar provision was added to the Senate version in the flurry of last-minute bargaining.) In an opinion article — which also favorably mentioned The Fact Checker — he argued that he managed to get a deal that “will cover nearly every taxpayer” in his district.

We decided to take a ground-level look at how he justifies this statement.

The Facts

The 3rd Congressional District is in the south-central portion of New Jersey, covering most of Burlington County and portions of Ocean County. The median household income is $68,300.

MacArthur was initially opposed to the GOP plan when it called for eliminating the deduction for all state and local taxes, arguing for an exemption for property taxes. He made the case that while income taxes are based on how much you make, property increases in value beyond a person’s control. (A retiree may have lived in a house for many years, for instance.) According to the Tax Foundation, New Jersey has the highest per capita property tax of any state.

Since 1996, New Jersey has capped the deduction for property taxes at $10,000, so the House bill would be in line with that concept. MacArthur was the only GOP lawmaker from New Jersey to support the tax bill, with the others decrying the impact on taxpayers in New Jersey who itemize deductions.

According to MacArthur’s staff, IRS data show that there are 360,000 taxpayers in the 3rd district, of whom 210,000 take the standard deduction or do not take a deduction for the property tax. That means that about 42 percent of taxpayers itemize, which is higher than the 30 percent for all U.S. taxpayers.

Two other big deductions — for mortgages and charitable contributions — would still be allowed, though the House would reduce the size of new mortgages that can be covered from $1 million to $500,000. (The Senate bill makes no reduction.)
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MacArthur’s staff says that these are conservative estimates, but essentially 93.3 percent of taxpayers in the district would be covered by the $10,000 property tax cap. That figure, they say, justifies the use of the phrase “nearly every taxpayer” in the opinion article. But it also means that 24,000 taxpayers — or 16 percent of the people who itemize — in his district are not covered by the cap.

Sounds good but, alas, it’s not quite so simple.

Under the House bill, the standard deduction would be doubled to $24,400 for couples and $12,200 for individuals. In many cases, these amounts would be higher than what people currently itemize, so it would become more advantageous to take the standard deduction.

In other words, the $10,000 cap would then become meaningless to them, because they would need substantial mortgage interest or charitable contributions to get above the thresholds for the standard deduction. (The House bill would eliminate other deductions, such as for high medical expenses.) According to an estimate by the Institute on Taxation and Economic Policy, which has a microsimulation tax model and has been critical of the tax proposals, about 60 percent of New Jersey taxpayers would no longer claim the property tax deduction.
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In theory, for many taxpayers the loss of deductions would not matter if the standard deduction is larger than what people would have claimed with itemized deductions. But the tax bills would also eliminate dependent and personal exemptions worth $4,050 each. Instead, a child tax credit would be expanded, to $1,600, and there would be a new $300 family credit, but these would phase out at income levels of $115,000 for single parents and $230,000 for married parents. Single tax filers would lose their exemptions but of course would not get a child or family credit.

MacArthur thus is highlighting the impact of the property tax deduction in isolation without considering the interaction with other aspects of the tax bill. An analysis of the Senate tax bill by the New York Times, focusing on the impact on the middle class, found that people who pay a lot in state and local taxes (more than $4,400) have a greater chance of experiencing a tax increase.

Posted in New Jersey Real Estate, Politics, Property Taxes | 141 Comments

Otteau Report November

Posted on December 1, 2017 by grim

From Otteau Group:

MarketNEWS November Edition

After home sales were basically unchanged during the month of September, New Jersey experienced a 9% increase in purchase contracts in October. Considering the 4% increase one year ago in October of 2016, home sales have increased at a compounded rate of 14% over the past 2 years. This latest gain was the highest number of purchase contracts recorded in the month of October over the past 12 years, signaling rising homeownership demand. Overall, home sales have increased in New Jersey by 5% year-to-date.

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 15%, 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 improvement has however been primarily concentrated in towns with direct rail service to Manhattan.

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 5,000 over the past year. This is also about 33,000 (-46%) fewer homes on the market compared to the cyclical high in 2011. Today’s unsold inventory equates to 4.3 months of sales (non-seasonally adjusted), which is lower than one year ago, when it was 5.2 months.

Currently, all of New Jersey’s 21 counties have less than 8.0 months of supply, which is a balance point for home prices. Essex and Middlesex Counties have the strongest market conditions in the state with just 3.0 months of supply, followed by Union, Hudson, Monmouth, Passaic, Mercer and Morris Counties, which all have 4.0 months of supply or less. The counties with the largest amount of unsold inventory (6 months or greater) are concentrated in the southern portion of the state including Cape May (6.7), Cumberland (7.2), Salem (7.3) and Atlantic (7.4), however, these counties have shown significant improvement and are beginning to exhibit strengthening conditions.
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Demand for rental apartments continues to expand in NJ with statewide occupancy rates being among the highest in the US. Statewide vacancy increased slightly to 3.5% (10 basis points). Nationally, the average vacancy rate also increased by 10 basis points to 4.5%. Still, the statewide and national vacancy rates remain well below their 2010 peak with vacancy rates having fallen by 170 bp and 350 bp, respectively.

Continuing economic growth and Millennials buying their 1st home has boosted the homeownership rate in New Jersey over the past 2 quarters from 62.2% to 65.4%, which is now 150 basis points higherthan the national rate. Still, the homeownership rate in the state has declined from 71.3% in 2005.Q1 to 63.8% in 2017.Q2, equating to an 8% drop, which is the same as the national trend. The homeownership decline over this period has created 194,000 additional renters in New Jersey.

Posted in Demographics, Economics, New Jersey Real Estate | 217 Comments