In 2013, real estate and mortgage banking are expected to decline rapidly as pundits predict another economic recession. There has been much buzz around the term “fiscal cliff’ that President Obama and other politicians have discussed. If the stock markets suffer a decline in trading volume, the United States may go over the fiscal cliff, but the verdict is still out as to whether this will be the case.
What Does the Fiscal Cliff Mean to the Housing Market?
Recently, Congress was left to decide if the tax cuts implemented in the Bush-era should continue into the New Year. Since the fiscal cliff will affect unemployment rates, mortgage interest rates, and the stock market, these areas must be addressed. There are numerous aspects of the housing market that may be affected.
Short sales have saved many banks from billions of dollars in losses. Instead of foreclosures, banks have been able to recoup as much as $30,000 more from short sales than from foreclosures. It is also more beneficial for the seller who will not be as affected by the negative impact on their credit reports. With short sales, the housing market can improve for 2013. Ideally, experts would like to have a housing market with no short sales or foreclosures, but in the meantime, short sales have been a solution to help improve the economy.
The fiscal cliff could keep taxes on home sales low. This would help to stimulate the housing market in 2013. To date, this is the biggest housing bust since the 1930s. Over 12 million homeowners owe more on their homes than the current value of their homes. With a short sale, the proceeds can help lenders reduce the debt incurred by defaulted loans. The mortgage debt from the five major mortgage lenders has reached $25 billion.
How Tax Reform May Affect the Fiscal Cliff and Housing Market
Over the coming months, decisions will be made regarding the fiscal cliff and the housing market. In 2012, $10.6 billion was given as relief from the housing crisis. Homeowners received as much as $77,000 in debt relief. The plan for 2013 is uncertain, but since a tax increase was approved, this may help to prevent going over the fiscal cliff.
Consumer spending may improve in a certain sector, but may decline in upper-income households because they will lose some tax breaks for mortgage interest and the personal exemption tax break. This will affect individuals making more than $250,000 and couples making more than $300,000. Wealthy has been redefined as $400,000 for individuals and $450,000 for couples in terms of capital gains. This will also affect consumer spending and housing.
Even with the problems, experts suggest that it could have been worse. Consumers may remain cautious when buying homes even thought the prices and mortgage interest rates will remain low.
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Peter Wendt is a freelance writer and researcher working from his home in Austin, TX. He has been following the fiscal cliff negotiations to see how they may affect the housing market in 2013. Wendt recommends speaking with a real estate agent for more housing information in your market.