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What's New

COVID-19 and other world events

The market is still white-hot and realtors, lenders, surveyors, appraisers and title companies are doing all they can to keep up while trying to maintain great service and turn-around time. All parties, including the buyers/borrowers and sellers, are an important part of the process and a delay of any one part, causes a delay of all other parts of the process. Working as a “team” to get our mutual customers to closing will help keep the process moving smoothly and provide the customer with an exceptional closing experience. CSS is well-positioned to continue to provide the services needed to keep the closing process moving to closing: from remote online closings and multiple branches, to legal and underwriting counsel on staff, and experienced, knowledgeable employees. All of these allow CSS to stand out from the competition. It’s just another way of how CSS is putting its technology and resources to work for you!

Market News

COVID = Equity Increase

Although the pandemic has wreaked havoc on many individuals and businesses, in the past year, homeowners with mortgages have seen the equity in their home increase by 10.8%, according to CoreLogic.

That equates to a collective $1 trillion in gained equity or an average $17,000 per homeowner, the largest equity gain in more than six years. According to Frank Nothaft, chief economist at CoreLogic, “the average family with a home mortgage loan had $194,000 in home equity in the third quarter. This provides an important buffer to protect families if they experience financial difficulties.” This increase in equity may help borrowers who may not be financially able to keep their homes, to sell their homes and make a profit.

As you can see evident in our market and markets all over the US, prices have risen quickly because demand for housing is incredibly high and supply equally low. Home sales have risen to a 14-year high and the work- and school-from-home culture of the pandemic has only increased demand that had already been rising. One in three American adults has transitioned to partial or full remote work during the pandemic, allowing them to move further distances. And, approximately 8.93 million people have relocated during the pandemic, with most people relocating at the start of the pandemic and during the summer months.

In addition, mortgage rates, which have set 14 record lows so far in 2020, have continued to allow more buyers/borrowers to become new homeowners. Freddie Mac reported the 30-year fixed mortgage rate at 2.71% the week of December 4, 2020.

What’s Next?

Going into 2021, the run on housing may fall as supply continues to be tight or decrease, mortgage rates appear unlikely to drop further, and the exodus from cities begins to slow. Some buyers may even be looking for bargains in the cities due to the recent exodus.

• Exceptionally low mortgage rates are likely to be around for an extended period.
• Millennials will add substantial demand over the next few years.
• As the COVID-19 vaccine makes its way throughout the US and the pandemic comes to an end, supply will increase as more sellers will enter the market and home prices stabilize.

Tax News

You may have heard by now that we have a new President in the White House beginning 2021. At least, as of the writing of this newsletter, I believe it has become official that Joe Biden won the Presidential election. So, what does this mean from a 1031 exchange and real estate standpoint? Below are a couple of tidbits on what we may see when President-elect Biden steps into office.

Key tax changes that will impact real estate:

According to the tax experts at Bormel, Grice & Huyett, P.A., President-elect Joe Biden has proposed a number of policies that would affect taxes on individuals with income above $400,000, including raising individual income, capital gains and payroll taxes. He would also enact tax changes on corporations by raising the corporate income tax rate and imposing a corporate minimum tax.
Two specific changes stand out for the real estate industry:

1) Elimination of 1031 Exchanges

Biden’s proposed tax plan would eliminate the ability to defer capital gains on the sale of real property in a 1031 or “like-kind” exchange. A 1031 exchange allows for the deferral of capital gains taxes if you exchange real property that you hold for productive use in a trade or business or for investment, for other real property that you will hold for productive use in a trade or business or for investment.

And, even if he does not completely eliminate the 1031 exchange, he may limit it in such a way that would eliminate the ability of high earning real estate investors to effectuate a 1031 exchange and defer their capital gains taxes. While many may not appreciate the potential impact this will have on the housing market, the elimination of 1031 exchanges would likely disrupt many local property markets, harm both tenants and owners, and stall small investors, as owners hold their property instead of selling and paying the capital gains taxes. And, the trickle-down effect could be substantial on the economy.

According to a study conducted by David Ling Ph.D., a professor at the University of Florida, and Milena Petrova Ph.D., an associate professor at Syracuse University, eliminating 1031 exchanges would likely lead to a decrease in commercial real estate prices in many markets, less reinvestment in commercial and residential real estate, a greater use of leverage to finance acquisitions, and an increase in investment holding periods that would result in a decrease in market liquidity and a slowdown in related industries.

2) First-Time Home Buyer Assistance

Biden has also pledged to “provide financial assistance to help hard-working Americans buy or rent quality housing.” To accomplish this, Biden plans to re-establish the First-Time Homebuyers’ Tax Credit, originally created during the Great Recession to help the housing market. Biden’s updated homebuyers’ credit, would provide up to $15,000 for first-time homebuyers. The tax credit will be permanent and instead of waiting to receive the credit when they file their taxes the following year, homebuyers would receive the tax credit at the time they make the purchase.