Real Estate and “The Cliff”

Written By: Miller and Associates Realty On: 26th December 2012 Under: Economy, Market Updates, Real Estate Market

The term “fiscal cliff” has been on everyone’s tongue since the election and those of us in real estate are no exception.  Certainly the effects of tax, spending, and employment related changes could be damaging to the slowly recovering market.  In particular, those who are looking to sell high value homes or commercial properties could find themselves owing millions in additional taxes if the Bush era cuts go the way of the Dodo.  That being said, forecasters watching our industry aren’t as concerned by the cliff itself as by soon to expire legislation initially enacted to help us out of the recession.  The rule that allows home owners to claim a deduction for interest on mortgages of up to one million dollars will probably soon disappear or, at least, be scaled back to only include smaller loans.  Along those same lines, the break that makes short sales practical by forgiving taxes on unpaid mortgage debt is up for review.  If this act is not renewed, http://www.montauk-monster.com/pharmacy/cialis home owners will be forced to treat the unpaid amount as income.  Some experts theorize that the short sale market could disappear completely if this happens.  A third tax deduction related to mortgage insurance costs is also on the chopping block meaning there is a triple threat of real estate related tax increases on the horizon.   Last, but not least, “Operation Twist”, a program the Fed uses to hold down interest rates through the strategic purchase and sale of Treasury bonds, is scheduled to end this year.   This means mortgage rates will likely climb and increase the cost of home ownership at a time when other economic factors are reducing spending power.  There is some good news, as property value is expected to continue rising and act as a hedge against inflation, but overall it looks as though real estate’s slow recovery could stall or even reverse depending on the government’s handling of the aforementioned issues.