What does Fitch, Fights, and Payoffs have to do with Real Estate?
As I write this, I am not sweltering in an afternoon Texas broil. I’m actually in Portland, Oregon to list a house. They say it is hot (high of 83). I laugh. What is hot, however, is their real estate market (well, at least in comparison to Austin). Homes receive multiple offers and, if priced correctly, are only seven to ten days on market.
In some of my previous poast, I gave everyone a break from the weekly market review to focus on what buyers must prioritize when purchasing a home in these current conditions. Since much has happened in the last two weeks, allow me to recap a few headlines before taking a two-week break for a much-needed vacation (don’t worry, I always pick up my phone).
Headline 1: Fitch downgraded the United States Credit Rating from AAA+ to AA+.
It punched the bond market in the mouth resulting in 7.5% interest rates by yesterday (Friday). The reason for the downgrade? “Fiscal deterioration” and “erosion” of governance, including through “repeated debt limit standoffs and last-minute resolutions.”
Headline 2: “The Housing Recession is Over.”
Obviously, this headline paled in comparison to #1. Maybe similar to, “Local canoe capsizes on Lake Winnipesaukee vs. “Titanic’s Sinking.” Not to say our sovereign credit ranking is sinking – oh boy – do NOT quote me, ha-ha. This second headline quoted Lawrence Yun, Chief Economist and Senior Vice President of Research at the National Association of Realtors.
Headline 3: “A fight erupts in U.S. Housing market as deteriorated affordability clashes with the “lock-in-effect.”
The “lock-in-effect” describes homeowners holding a 2% to 3% who have no appetite to move and take on a 7% loan. As a result, there were 26.6% fewer homes listed in June 23 versus June 22, and 28.9% fewer than in June 2019. The result? In some U.S. cities, home prices have increased (Austin, for now, is an exception).
Headline 4: “Three ways we could convince homeowners to sell their homes – by paying them.”
Within the framework of Headline 3, creative minds are introducing three common sense ways to dislodge the logjam of immovable sellers. What are the three?
Option 1: What if the government paid people to sell their houses?
The thinking goes like this: the government paid people to buy houses after the 2008 financial crisis, now it could pay people to sell houses. Before you laugh out loud, the U.S. House is floating a bill to double the capital gains exclusion on primary residences. It has 15 co-sponsors from both parties.
Option 2: A $25,000 credit for 20-year homeowners.
Primary homeowners, who have lived at their same address, could receive a $25,000 tax credit if they decided to move. The two authors of this bill estimate this measure would increase the supply of homes by 296,000 to 640,000.
Option 3: Cut capital gains tax on small landlords.
By offering a limited-time 50% reduction in the capital gains tax rates for small-time landlords who sell single-family rental properties to first-time home buyers (now that is a mouthful), an estimated 67,000 to 146,000 houses could be released to buyers. My personal take? It does not move the needle much at all.
What do I make of all four headlines from this week? Between elevated home prices, higher interest rates and reluctant sellers, we are leaning into some rather stiff headwinds.