Bipartisan legislation pending to help home sellers & buyers

[BabyBoomer50s]

Encouraging news for boomers who want to sell their houses and buyers looking for homes. Write your Congress member.


March 1, 2023
Press Release
Monterey, CA – Today, U.S. Representative Jimmy Panetta (CA-19) and Representative Mike Kelly (PA-16) reintroduced the bipartisan More Homes on the Market Act to address ongoing housing affordability issues across the country. The legislation would amend the tax code to incentivize more homeowners to sell their houses and increase the market supply.
The More Homes on the Market Act ensures homeowners can keep more of their investment when selling their homes by increasing the sales gain tax exclusion to $500,000 for single filers and $1 million for joint filers. Currently, homeowners who sell their home can only exclude $250,000 in gains from capital gains taxes, or $500,000 in the case of a joint-filing couple, an amount set in 1997 and not indexed for inflation. This has had an outsized impact on California homeowners who face some of the highest housing costs in the nation.

https://panetta.house.gov/media/pre...duce-bipartisan-legislation-make-housing-more

 

[AlexBailey]

I’m afraid if the unintended consequences of these efforts.

There is still a huge disparity of wealth that allows corporations and investors to buy up real estate and convert even more housing to revenue engines rather than building generational wealth for families.

I’m seeing a need for disincentives for large scale investment groups, but those details will need some serious discussions.

 

[BabyBoomer50s]

I’m afraid if the unintended consequences of these efforts.

There is still a huge disparity of wealth that allows corporations and investors to buy up real estate and convert even more housing to revenue engines rather than building generational wealth for families.

I’m seeing a need for disincentives for large scale investment groups, but those details will need some serious discussions.

Corporate purchases of residential homes is ticking up and it is somewhat concerning that they are competing with individuals and driving prices up. That said, I don’t think tax policies that incentivize older homeowners to keep their houses off the market helps address that issue.

 

[AlexBailey]

Without protecting average citizens more corporate investment is making a larger portion of the population renters who are building more wealth for already wealthy owners.

https://www.pewtrusts.org/en/resear...rter-of-homes-sold-last-year-driving-up-rents

“Investors bought 24% of all single-family houses sold nationwide last year, up from 15% to 16% annually going back to 2012, according to a Stateline analysis of data provided by CoreLogic, a California-based data analytics firm. That share dipped only slightly in the first five months of 2022 to 22%.”

 

[BabyBoomer50s]

Without protecting average citizens more corporate investment is making a larger portion of the population renters who are building more wealth for already wealthy owners.

https://www.pewtrusts.org/en/resear...rter-of-homes-sold-last-year-driving-up-rents

“Investors bought 24% of all single-family houses sold nationwide last year, up from 15% to 16% annually going back to 2012, according to a Stateline analysis of data provided by CoreLogic, a California-based data analytics firm. That share dipped only slightly in the first five months of 2022 to 22%.”

I’ve seen similar numbers. Mom and pop landlords and house flippers, and corporations have been buying more houses as well.

 

[Chobham]

Kinda addressing both Boomer and Bailey.

Bailey, I'm a little surprised to see you express concern for the building of 'generational wealth.' Seems to be at odds with your politics.

Boomer, those bailouts seem to include the commercial investors as well. The devil's in the details. IF the 'in residence rule' applies your still screwed. (Unless you want to move back to CA. for what, 3 years?)

Overall no good deed goes unpunished. I see the dilemma of the commercial investors buying up single family homes as a self-curing problem over time. First of all because of the interest hikes property values are falling and the end isn't in sight yet. Further there is an issue in converting those properties into income (rental) properties. That strategy is limited by the local economies and at some point the 'ask' for the rents will exceed the potential renter's ability to pay. The commercial folks want to see a return on investment and renting to just make the costs just doesn't cut it in a falling price environment. Can they wait it out? Inflation is expected to continue for the next 10 years for reasons beyond the Fed's control and if that turns out to be true those commercial folks are going to have to begin in divestitures and at a loss to boot.

 

[AlexBailey]

Kinda addressing both Boomer and Bailey.

Bailey, I'm a little surprised to see you express concern for the building of 'generational wealth.' Seems to be at odds with your politics.

Boomer, those bailouts seem to include the commercial investors as well. The devil's in the details. IF the 'in residence rule' applies your still screwed. (Unless you want to move back to CA. for what, 3 years?)

Overall no good deed goes unpunished. I see the dilemma of the commercial investors buying up single family homes as a self-curing problem over time. First of all because of the interest hikes property values are falling and the end isn't in sight yet. Further there is an issue in converting those properties into income (rental) properties. That strategy is limited by the local economies and at some point the 'ask' for the rents will exceed the potential renter's ability to pay. The commercial folks want to see a return on investment and renting to just make the costs just doesn't cut it in a falling price environment. Can they wait it out? Inflation is expected to continue for the next 10 years for reasons beyond the Fed's control and if that turns out to be true those commercial folks are going to have to begin in divestitures and at a loss to boot.

I’m not at all opposed to private home ownership.

If you can get into a starter home, paying for a mortgage rather than rent is the easiest way to build personal wealth, and to avoid the inflation of housing costs, and it provides something for offspring to inherit.

The system we have gives way more leverage to wealthy investors than to individuals.

Lower income buyers are often not eligible for the lowest interest mortgages, and they are usually required to pay for mortgage insurance even though the loan is fully collateralized.

An investor can write off all of their expenses while a homeowner can only write off interest payments.

There isn’t an easy answer to this, though there are some good ideas such as right of first refusal for tenants. But why would a corporation sell its properties when the owners could just sell the corporation to another investor? Since the corporation is the owner, the properties don’t need to change hands.

I’m also not opposed to a mom and pop owning a few properties. Having a right of first refusal and other tax incentives for long term tenants could be good.

I think we need to look at tax disincentives for owning too many homes, but need to be carefully considered as it can have many unintended consequences.

 

[AlexBailey]

Having most of the population unable to afford homeownership is a big problem.

Rents increase as people get older, and some are priced out of housing. My wife deals with many elderly who lose their housing for any number of reasons.

The wild fires that destroyed Paradise CA left many elderly on fixed incomes homeless while FEMA funds for rebuilding went to landlords.

It’s easy for someone to say that it was their own fault for not planning better but in a system that gives so much financial leverage to wealthy investors there will be more and more people who are priced out of the market.

 

[Chobham]

I’m not at all opposed to private home ownership.

If you can get into a starter home, paying for a mortgage rather than rent is the easiest way to build personal wealth, and to avoid the inflation of housing costs, and it provides something for offspring to inherit.

The system we have gives way more leverage to wealthy investors than to individuals.

Lower income buyers are often not eligible for the lowest interest mortgages, and they are usually required to pay for mortgage insurance even though the loan is fully collateralized.

An investor can write off all of their expenses while a homeowner can only write off interest payments.

There isn’t an easy answer to this, though there are some good ideas such as right of first refusal for tenants. But why would a corporation sell its properties when the owners could just sell the corporation to another investor? Since the corporation is the owner, the properties don’t need to change hands.

I’m also not opposed to a mom and pop owning a few properties. Having a right of first refusal and other tax incentives for long term tenants could be good.

I think we need to look at tax disincentives for owning too many homes, but need to be carefully considered as it can have many unintended consequences.

You've made some valid points there Bailey.

To your first point. "If you can get", 'IF' being the operative word. Interest rates and government policy drives that. Too easy to qualify and we have 2007 all over again and too hard and.................well, that's self explanatory.

Mortgage insurance or Title insurance? Demanding a full abstract and having a lawyer go over that can avoid the title insurance but that is a cost as well.

Damn good point on the write down but opening that up is rife for abuse.

"Right of first refusal" also has unintended consequences.

What about the banks selling the loan? I had one property that went through 4 lenders hands. I took out an ARM and the payments were about $450/mo. I threw an extra $200 a month at principle and when I sold the property the monthly payments were $128/mo. That loan was among the first to be bundled and sold off, it was a money loser for them. I see your point but I see no easy way out.

A 'few?' What's the cut off? Exactly how many wholly owned LLC's will I have to spin off to avoid the limit? It gets complicated real fast.

 

[AlexBailey]

You've made some valid points there Bailey.

To your first point. "If you can get", 'IF' being the operative word. Interest rates and government policy drives that. Too easy to qualify and we have 2007 all over again and too hard and.................well, that's self explanatory.

Mortgage insurance or Title insurance? Demanding a full abstract and having a lawyer go over that can avoid the title insurance but that is a cost as well.

Damn good point on the write down but opening that up is rife for abuse.

"Right of first refusal" also has unintended consequences.

What about the banks selling the loan? I had one property that went through 4 lenders hands. I took out an ARM and the payments were about $450/mo. I threw an extra $200 a month at principle and when I sold the property the monthly payments were $128/mo. That loan was among the first to be bundled and sold off, it was a money loser for them. I see your point but I see no easy way out.

A 'few?' What's the cut off? Exactly how many wholly owned LLC's will I have to spin off to avoid the limit? It gets complicated real fast.

The devil is in the details and it’s certain there will be more people in the future and if thing keep on as they are ownership will become more and more concentrated.

Mortgage insurance and Title Insurance are different things. If you haven’t been required to have mortgage insurance you’ve probably got enough income or wealth to avoid the requirement. It makes a further expense for low income buyers, making it so their limited resources are worth even less.

Another big issue is the mortgage banking system. Keep in mind that by the time a thirty year mortgage is paid more money as interest has typically gone to the banks (the most profitable sector of the economy) than to pay the principal of the loan.

Wall Street and banking investors are using their money to invest in real estate and pushing up prices in the process.

 

[Chobham]

The devil is in the details and it’s certain there will be more people in the future and if thing keep on as they are ownership will become more and more concentrated.


Another big issue is the mortgage banking system. Keep in mind that by the time a thirty year mortgage is paid more money as interest has typically gone to the banks (the most profitable sector of the economy) than to pay the principal of the loan.

Wall Street and banking investors are using their money to invest in real estate and pushing up prices in the process.

No shit, why do you think I did what I did? What people don't understand is that you can do the same thing with a conventional loan. It won't reduce the payments but it will significantly reduce the pay off time and the interest paid. Even $25/mo targeted to principle makes a big difference over time. It seems to me that buyer education, and discipline (if they choose to apply discipline), is part of the equation as well.

 

[AlexBailey]

No shit, why do you think I did what I did? What people don't understand is that you can do the same thing with a conventional loan. It won't reduce the payments but it will significantly reduce the pay off time and the interest paid. Even $25/mo targeted to principle makes a big difference over time. It seems to me that buyer education, and discipline (if they choose to apply discipline), is part of the equation as well.

Lucky for us who have the income to pay a little more against the principal.

It’s expensive to be poor, definitely not recommended.

 

[Chobham]

Lucky for us who have the income to pay a little more against the principal.

It’s expensive to be poor, definitely not recommended.

Come on Bailey, it's not the 'poor' that are going to be caught up in this debacle.

 

[HisArpy]

No shit, why do you think I did what I did? What people don't understand is that you can do the same thing with a conventional loan. It won't reduce the payments but it will significantly reduce the pay off time and the interest paid. Even $25/mo targeted to principle makes a big difference over time. It seems to me that buyer education, and discipline (if they choose to apply discipline), is part of the equation as well.

Another part of the equation is the real estate agent's greed and self interest. The industry says it has checks in the system to limit or prevent that from being part of the buy/sell agreement, but the reality is that there aren't any real disincentives to not price gouge the buyer and take advantage of the seller.

The banks/lenders are in league with the Real Estate agents and market because of points, origination fees, this that and the other thing fees, commissions, and the like. Then there's the fact that too many people buy a house they really can't afford because the bank/mortgagor manipulates the buyers income data and pushes them into something they don't really have the buying power to purchase and keep except on paper. That means that there isn't any financial cushion to protect the buyer when life tosses a few lemons around.

I do like the idea that the captial gains exclusion on real estate needs to be updated. However, I think the numbers are too high and are designed to help shelter mega mansions from tax liability more than they are to help the general working stiff type of homeowner. One need only ask where the homes which would be protected by the new exclusion caps are located to see who is getting the benefit.

 

[BabyBoomer50s]

I do like the idea that the captial gains exclusion on real estate needs to be updated. However, I think the numbers are too high and are designed to help shelter mega mansions from tax liability more than they are to help the general working stiff type of homeowner. One need only ask where the homes which would be protected by the new exclusion caps are located to see who is getting the benefit.

Lots of middle class retirees in high tax areas are sitting on single family houses they no longer need rather than downsizing. Here’s a common example that illustrates why:

- Married Silicon Valley couple with kids in their mid 30s purchases a 2000 square foot house on the peninsula in 1995 for $350,000.
- In 2021, the kids are grown and gone, the couple is retired, and the market value of the house is now $2.2 million. The couple considers moving to a smaller home somewhere else.
- They can document improvements made over the decades amounting to $150,000. This raises the cost basis of the home to $500,000.
- if they sell the house, the net proceeds after commissions and other costs is $2 million. The capital gain is $1.5 million.
- The taxable gain is $1.5 million minus the $500K exclusion for couples filing jointly = $1 million
- Now here comes the tax math: Federal capital gains tax 20% = $200K. CA state marginal tax rate for millionaires 13.2% = $132K. City and county property transfer taxes approximately $25K. So roughly $350K in taxes. Alternatively, they can keep the house and leave it to their kids inheritance. The cost basis rises to market value when the kid’s inheritance it so they can sell it and pay no taxes, or keep it as a rental and continue enjoying Prop 13 property tax protections.

The $250K single filer exemption and $500K married exemption is out of date. Doubling it will bring more houses on the market.

 

[HisArpy]

Lots of middle class retirees in high tax areas are sitting on single family houses they no longer need rather than downsizing. Here’s a common example that illustrates why:

- Married Silicon Valley couple with kids in their mid 30s purchases a 2000 square foot house on the peninsula in 1995 for $350,000.
- In 2021, the kids are grown and gone, the couple is retired, and the market value of the house is now $2.2 million. The couple considers moving to a smaller home somewhere else.
- They can document improvements made over the decades amounting to $150,000. This raises the cost basis of the home to $500,000.
- if they sell the house, the net proceeds after commissions and other costs is $2 million. The capital gain is $1.5 million.
- The taxable gain is $1.5 million minus the $500K exclusion for couples filing jointly = $1 million
- Now here comes the tax math: Federal capital gains tax 20% = $200K. CA state marginal tax rate for millionaires 13.2% = $132K. City and county property transfer taxes approximately $25K. So roughly $350K in taxes. Alternatively, they can keep the house and leave it to their kids inheritance. The cost basis rises to market value when the kid’s inheritance it so they can sell it and pay no taxes, or keep it as a rental and continue enjoying Prop 13 property tax protections.

The $250K single filer exemption and $500K married exemption is out of date. Doubling it will bring more houses on the market.

No it won't. The belief that sheltering the cap gains will induce people to sell is a false narrative because it doesn't consider the other costs involved.

Other costs like the increased tax base for the new property for sellers who are now on fixed incomes. Even with downsizing the taxes on the new house are going to be more than the taxes on the old house. So there's not going to be a tax "savings", it's just disguised to come from a different source direction.

Secondly, they don't have to sell. They can gift the property to their heirs at the current tax basis and the heirs can keep the property without incurring additional taxes on it. Even when the heirs sell they get the advantage of a stepped up tax basis. I know several families which have done this to avoid taxes as well as probate.

Third, none of this will make housing more affordable. In fact it will do just the opposite because it allows excess capital appreciation to be sheltered. Anyone with long term real estate plans understands that sheltering cap gains on sale affects the sales price by allowing it to go up to maximize the tax free profits.

 

[Chobham]

Another part of the equation is the real estate agent's greed and self interest. The industry says it has checks in the system to limit or prevent that from being part of the buy/sell agreement, but the reality is that there aren't any real disincentives to not price gouge the buyer and take advantage of the seller.

The banks/lenders are in league with the Real Estate agents and market because of points, origination fees, this that and the other thing fees, commissions, and the like. Then there's the fact that too many people buy a house they really can't afford because the bank/mortgagor manipulates the buyers income data and pushes them into something they don't really have the buying power to purchase and keep except on paper. That means that there isn't any financial cushion to protect the buyer when life tosses a few lemons around.

I do like the idea that the captial gains exclusion on real estate needs to be updated. However, I think the numbers are too high and are designed to help shelter mega mansions from tax liability more than they are to help the general working stiff type of homeowner. One need only ask where the homes which would be protected by the new exclusion caps are located to see who is getting the benefit.

Slow down there HA. In most states the agent is a fiduciary responsible to whoever they're contracted to, be that the buyer or the seller. In the case of a seller's rep. they can subject themselves to legal action if they DO NOT maximize the return to the seller so be careful about going off on the agent.

As to the fees etc., yep.

 

[HisArpy]

Slow down there HA. In most states the agent is a fiduciary responsible to whoever they're contracted to, be that the buyer or the seller. In the case of a seller's rep. they can subject themselves to legal action if they DO NOT maximize the return to the seller so be careful about going off on the agent.

As to the fees etc., yep.

The fact is, the laws and rules which are supposed to prevent malfeasance by agents are ignored by the industry to the point that the grift is openly complained about with facts presented to support the complaints. Most agents/brokers say that "they" don't do it, but no one in the industry believes it and in fact most agents/brokers know of someone who has placed his own interests above the customer's at least once.

 

[Chobham]

The fact is, the laws and rules which are supposed to prevent malfeasance by agents are ignored by the industry to the point that the grift is openly complained about with facts presented to support the complaints. Most agents/brokers say that "they" don't do it, but no one in the industry believes it and in fact most agents/brokers know of someone who has placed his own interests above the customer's at least once.

Who IS the 'customer?' In most real estate transactions the 'customer' is the seller, not the buyer and in that case the agent has NO obligation to act in the buyer's best interests.

 

[HisArpy]

Who IS the 'customer?' In most real estate transactions the 'customer' is the seller, not the buyer and in that case the agent has NO obligation to act in the buyer's best interests.

Actually, sales agents do have a fiduciary duty to the buyer and must disclose if they also represent the seller and allow the buyer to opt for a different agent if they believe that the sales agent has a conflict of interest.

So, that is at least one instance of a conflict between an agent and a buyer. Another is in the area of commissions. It is in the AGENT'S best interest to get the best price for the seller, not only because he has a fiduciary obligation to do so, but his commission will benefit from the highest possible price for the property.

Then there are the many many many stories of how agents took advantage of sellers to obtain property at less than market value just so the agent could profit on resale of the property.

The entire real estate industry is so filled with outright graft that it's still attempting to adopt rules and regulations to minimize it. And even with rules in place to try to fix some of the issues, the industry still goes along with the graft instead. (Like in the area of commission percentages - the "rule" is that commissions aren't fixed but I know of NO agent who will negotiate their commission rate. Thus the rule appears to solve an issue where rates are fixed, but it doesn't actually require that any agent do anything. So it's as if rates are fixed anyway.)