The housing market is in rough shape. Drastic underproduction of new housing (continues today), less than optimally managed Federal Reserve fiscal policy, and years of 30-year fixed rates in the 2’s have completely gummed up America’s housing market – which represents 18% of GDP in the country.
Mortgage rates are at 23-year highs. Mortgage applications are at 27-year lows. Wells Fargo’s economists just said we’re heading towards a housing recession. And there are scores of increasingly discouraged wanna-be-homebuyers refreshing Zillow daily as the problem gets worse while the Fed continues to bang the “we’re staying the course to combat persistent inflation” drum.
Can anything be done about this? YES! When America faces an attack, a crisis, or a natural disaster – Congress acts swiftly on behalf of the American people. There are things that can be done. Here’s just a couple. Both will come at a cost (less tax revenue), but are not overly complex, and could be implemented quickly if Congress wanted to. Also, there's a cost to doing nothing.
Give Tax Incentives To Individual Landlords To Sell Their Investment Properties To Owner Occupants
Currently, when an individual landlord sells a house or houses they own, they have to pay capital gains taxes on gains over $250,000. Given the home appreciation we’ve seen and the fact the vast majority of individual landlords own more than one property, this piece of the tax code is a major current deterrent to sellers.
If Congress were to pass a bill that would eliminate or reduce capital gains taxes for individuals who own investment properties that sell them to owner occupants, there would be legions of financial planners across America advising their investment property-owning clients to do exactly that. It would instantly and immediately put affordable homes out on to the market and for sale. It would help the people that need it most and also help with overall affordability as the current inventory levels just keep pushing housing prices higher.
There’s actually a bill in Congress on this. The More Homes on the Market Act was put out on the House floor on March 30, 2023. There has been zero movement or progress. Govtrack.us gives the bill a 1% chance of being enacted.
Introduce A Home Seller Tax Credit For Owner-Occupants
In 2008 as a response to the financial crisis, the Obama administration very successfully rolled out a federal first-time homebuyer tax credit. The law allowed new homebuyers to get a tax credit of $7,500 in year one. In 2009, Congress increased the amount first-time buyers could earn to $8,000. The program ended in 2010 after achieving the desired results.
Just like there’s gobs of aspiring homeowners on the sidelines, there’s also so many owner-occupant homeowners right now that would love to “cash out” and to sell their home to upsize, or downsize, or to relocate. But are deterred by the prospects of leaving their 2.50% 30-year fixed rate to jump into bed with an 8% rate. So let’s be creative with a $20,000-$30,000 tax credit that will get those home owners to rethink their position if they sell their home to a fellow owner-occupant.
With either of these incentives, guardrails can be placed around them to limit the size of the aid package. I’d argue even just a 90-day window for both of these programs (January – March 2024??) would have dramatic impact and would help bring some life to the housing market while the Fed continues to wage its battle with inflation this winter.
Founder, Onward & Upward Consulting
Rich Swerbinsky is the founder of Onward & Upward Consulting, a firm focused on helping business owners expand revenue & profits through growth, organizational effectiveness & operational efficiency. Rich has also curated a consortium of subject matter experts for the firm to supplement his areas of expertise - growing & scaling businesses, career coaching & mentoring, and event planning & management. Rich can be contacted at email@example.com