As an addendum to helping your child buy a home, what are other ways to help the housing market move forward?
Some reasons why it is stuck by increasing demand and prices:
• No one wants to give up their low interest rates for a high one, so they stay, sometimes even rejecting good job offers in other cities.
• Boomers can’t find alternatives, so they stay in their large homes. Downsizing often means paying more for less.
• The rates are too high (I have issues with this one. Historically the rates have been higher, but housing costs were much much less, and the percentage of home cost vs income was much lower, so the math still worked)
• There is not enough new housing builds since so many builders left during the ”great recession”, and many in the baby “boomlet” are in their expansion phase, needing more space.
• Many more individuals remain single (so more units needed).
• ALL of the above
Some brainstorming. Please debate the economics or missing ramifications. (Nearly all would require regulation changes).
• Whatever happened to assumable loans? If an owner wants to sell, what are the downsides of an assumable loan? If a buyer pays a fee to the mortgage company, how would that hurt the lender? Sure, it would be better for a lender to get a 7% return than a 3%, but if no sale occurs, as the market is now, they are only making the lower 3% anyway. Better to pocket some fees than nothing? Downpayments would still be high due to increased values, and potentially be a little higher yet due to equity built by the seller, but if the seller has only been in their house +/- 3-5 years, not much equity has been built.
• Seniors over a certain age could perhaps be given a form of credit when selling (instead of a penalty for living in their home so long and winning the home inflation lottery beyond the current limits). That might encourage seniors to sell sooner and pocket the increases to use toward long-term care options, or downsizing.
• Make renting more palatable? Home owners get tax incentives. Renters get nothing. And rents have skyrocketed. I know of other countries (and some cities), who place limits on rent increases. Rent increases could potentially be tied to cost increases? Property taxes rise. Repair costs rise. Rents SHOULD rise accordingly. But perhaps not exponentially. I know - not the American way.
• Tax incentives and zoning changes for higher density (Some cities are already doing this).
• Tax incentives for builders who market to middle income vs. high income buyers? Most new builds I know are VERY expensive to make the proforma work for developers.
• OTHER thoughts?
Biggest issue in the Thumper household is the cost of buying another home IF we sold this one. Costs for smaller and newer homes is a LOT more than what we would get selling this one…if we remain in this area which we want to do. I could buy a fixer upper for less, but I’m not interested in that. BTDT.
Capital gains exclusion has not caught up with the inflation. Add realtor’s fees, higher interest rates on new mortgages, etc. and many boomers don’t think it is feasible to uproot.
@BunsenBurner many people that we know are not selling their homes because the capital gains exemption is low for areas like Southern California and other HCOL cities where the potential price you could get for your home is much higher than the $500K married exemption.
I would like to see some kind of tax breaks for people that rent. There are many younger people here in San Diego who will never be able to afford to buy a home so they will always be renters.
MA has a very small tax break for renting (rent credit of $3,000 a year going up to I think $4,000 next year.) They also have a severe shortage of rental units across the state.
It all comes down to supply and demand. Low inventory of homes means higher prices (as does low inventory of apartments means higher rents). We need to build more reasonablypriced housing everywhere.
I would also like to see more creative housing solutions. Denser housing that meets peoples needs: Condos with shared amenities for families or seniors, Apartments that create communities, Transit hubs, etc.
The key here is reasonably priced new housing - rentals that are not high luxury so people can afford them, condos that cost less than single family homes (with low HOA fees), etc.
It should not be that selling your big house and buying a smaller one costs more not less.
I have no idea how to make this happen. Construction costs have risen putting pressure on the cost of new homes. We are kinda stuck right now.
San Diego wants to build higher density properties, but the problem is they are mostly going to be luxury units put up by developers and not affordable ones. Short term rentals are also a big problem here.
I like the idea of some break/advantage for seniors/retired people to sell or downsize to open up the # of homes available because I also want to limit the number of green space taken to just build,build, build - especially in some suburbs. In some of our suburbs they are just slapping up 3-4 bedrooms homes with space perks and nice lots…maybe we save green space by if we have to build, making additional smaller homes/condos with very small outside area (and less upkeep).
I am not sure we will ever see sub 3% interest rates. Even GI loans in the early 50s were 4%. So until the mortgage is paid off, it just does not make financial sense to sell and move. Alsp, if the capital gain is over 250/500k, there is the tax hit. Only new builds will free up the market, and in mature built up areas, that is not gonna happen. Could take another 20 years, until boomers pay off their last 30 yr mortgages and move out, either to nursing homes or subterranean homes.
Our kids would be happy in a 3-bedroom apartment instead of a house, but it is impossible to find such apartments… all newly built complexes are 2-bed max. Kind of tight for a family with kids and a need for a home office. Plus, in some places you wouldn’t be allowed to have more than 2 people per bedroom in a centrally managed rental.
IMO, it’s time for some legislation to ban or at least limit the number of single family homes private investors can purchase.
Otherwise, I fear many first time buyers and others won’t stand a chance.
One thing I am seeing is condos with an attic that has been finished to be a “master suite.” Basically a rug and bathroom. Then the price goes up $200k. I have seen this form of flipping three times in two months.
There is, but in fact, the tax law changes from early in the Trump admin made the situation much worse. Before the tax change, with its cap on State and Local Tax deduction (SALT) to 10K, a family living in a locale with higher property taxes could deduct these from their federally taxable income. After the change limited it to 10K, a family where the earners paid state/city income taxes usually hit the cap way before they could deduct their property taxes. It made it less tax-advantageous to rent. Meanwhile, those same property taxes paid by a landlord on a rental property remained 100% deductible as a business expense. Not to mention that the new reduction/rebate on business income was made unlimited for… you guessed it, real estate income. Gee, I wonder why that was?
In any event, we, as a society, once encouraged home ownership by making mortgage interest deductible, along with property taxes. Now, for many in liberal states which have an income tax and which have high property taxes to pay for good schools, police, fire, town mgmt, etc, their property taxes are no longer deductible, while at the same time, we’re giving a tax advantage to landlords. Hence corporations are buying up homes all over, reducing the number of homes available to ordinary families, and turning more and more homes into rentals.
The way to encourage home ownership is to remove the state and local tax decuctibility ceiling, and even put a deduction greater than mortgage interest onto primary home ownership, up to a certain amount. If we make it cheaper to own than to rent, and make it much more expensive to own multiple properties and rent them out, then the market will shift to favor ownership of one’s primary residence.