Fiscal Cliff & Real Estate: Are You Ready for the Plunge?

The clock is ticking on whether we as a country fall into the abyss another possible recession or if the government “of the people, for the people, and by the people” can come to a solution, even just a temporary one, to the omnipresent fiscal cliff calamity.

From the prognosis of raising taxes and lowering benefits if no agreement is made, the ramifications extend to real estate also.  Without a solution any momentum we have seen in real estate in recent months may go by the wayside. 

POSSIBLE RECESSION.  When the economy is at a low state such as a recession, it takes years for a recovery. Look at recent history.  Homes are still nearly 35% less than they were in 2006.

HIGHER TAXES.  Paying higher taxes  gives home-buyers less money for down-payments on a home.  The result is requesting a higher mortgage, while giving banks yet another reason to be in the driver's seat not to give out loans.

MDRA.    The Mortgage Debt Relief Act is set to expire at the end of this year.  The act had allowed homeowners who sold their homes in short sales, to avoid paying taxes on mortgage balances that had been forgiven.  That policy has been in effect since 2007, but it could soon come to an end.  If MDRA is not extended those home sellers who once had the opportunity to sell their home will forego continuing the short sale process and just let the banks take-over through foreclosure.  The result on the real estate market can halt any price improvement that we have seen.  And looking at the foreclosure forecast prior to any cliff diving (www.realtytrac.com/trendcenter/NJ-trend.html )is scary by itself.

Mortgage Interest Deduction.  Although not a direct result of the fiscal
cliff, the possibility of losing deductions for real estate mortgages can also
change the landscape of one of the key aspects of homeownership.  Currently the talk is that it will affect either second homes, or investment properties, and/or maybe those homeowners over a certain income level (the talk is $200,000/$250,000).  It is only the beginning.  Because as we all know, once the right is taken away from one, everyone else with a home could follow. 

Adding a service tax to real estate commission.  There is a bill in congress (although pretty quiet right now) that is looking to add a tax to a real estate companies commissions, over and above the already required income taxes.  (Sounds like double taxation to me!) Of course, the public will believe that it does not affect them and the mis-perception Realtors already make too much money).  However, it certainly affects the consumer as fees for service will either have to be raised or the services themselves will be constrained.  (A business is a business.)

Without a doubt the country is in a financial mess and it must be fixed, and although no politician will touch their salaries or their forever benefits and pensions, nonetheless, someone has to pay. This is prevalent for today and for our and our children’s future.  However, the housing market plays a key role in our economy and should not be touched.

As Americans we have the right and obligation to express our thoughts and concerns to our representative.  As an industry, the National Association of Realtors already does with their very powerful Realtor Political Action Committee (RPAC) which has been strong advocates for not just Realtor issue but for homeownership issues.  RPAC is a force in homeownership and if you are currently working with a Realtor who has not contributed, then consider using a different Realtor as they are not fighting for your homeowner rights.  As individuals, have your voice heard and call or email your representatives.

If there is no resolve by December 31st, let us hope this cliff is just a curb. 

I hope you have enjoyed my articles in 2012.  I am looking forward to bringing you more issues in 2013.  Look for my year re-cap in early January.

From me to you and your family, HAVE A HAPPY & WONDERFUL NEW YEAR!