I’ve received some e-mails recently from those who have read my blog asking my thoughts on the fiscal cliff and whether or not the outcome will greatly affect the housing industry. In other words they are asking “is it still a good time to buy?” Here are my thoughts on the “Fiscal Cliff.”
First off the fiscal cliff has been blown out of proportion by the media, by the current administration and by both parties. Basically all the fiscal cliff is, is the need to balance a budget and reconstruct some tax laws and policy. Hypothetically if nothing happens and congress cannot come to an agreement we will NOT go into recession January 1st. It is simply not possible. It is not economically possible to wake up one morning and suddenly be in a recession. That is not how the economy works. You may have a small market disruption, a quick sell off, etc. but housing would not see any affects of this.
If you remember a little while back there was talk on raising the debt ceiling. If it was not raised the US was not going to have the legal ability to pay its debts. The markets were panicked, the media was eating it up, our bond rating was on the verge of a downgrade and the international press was having a field day. However at the very last hour a deal was passed. I’m sure something very similar will happen here.
The housing market is currently recovering nicely due to low interest rates, rising rent prices but most importantly renewed consumer confidence. Despite the fiscal cliff all my buyer clients are very excited to purchase and cannot wait to close on their home. It is this confidence that we need to watch and will remain an indicator of the strength and resiliency of the housing market.
Interest Tax Deduction: The Home Mortgage Interest Tax deduction has come up in the news recently. For those of you who don’t know what that is, it is a tax policy that allows you to deduct your home mortgage interest on your taxes. This policy has been in place for years and years and has become one of the biggest selling points in today’s market for buying a home. Even if home prices remain flat for years the ability for you to deduct your interest can save you thousands year after year. The media has recently made comments that this sacred cow of a tax policy may be taken away. Nothing can be further from the truth. While media has spoken of it and a few idiotic congressmen/women have mentioned it; it is NOT something being considered by congress as part of a revenue generation plan. We may see the deduction limited to $750,000 or $1,000,000. This would mean that the interest on your mortgage of 750k or 1 Mil would be deductible but nothing beyond that could be deducted. Such a cap would have very very little affect on the market if it is passed so I am not worried about it.
At the end of the day lets just look at what congress has done for decades. They’ve just kicked the can down the road. Many times they wait until the last minute to kick it and worry the market but they will always give it a kick and this time it will be no different.