The intense and prolonged seller’s market has had a profound impact on Americans buying and selling homes this year. An incredibly low supply of available homes has persisted throughout the U.S. and historically low mortgage rates continue to encourage new potential buyers to enter the market – despite the competition. If homeowners thinking about selling their home, now is absolutely the time to do so.

Housing

Listings are still down, despite the market conditions that are incredibly favorable for selling a home. 

Comparing year-to-date Bright MLS cumulative listings hitting the market in 2020 and 2021 (covering most of the mid-Atlantic region and the entirety of Houwzer’s Philadelphia, Baltimore and DC region footprint), both years started out on a fairly similar trajectory, but starting in February 2021, listings fell behind.

By early April 2021, though, listings picked up pace and exceeded the year to date listings total of the same period the year before. This is not too surprising given how much real estate activity fell off during the early days of the pandemic. 

PROMOTED

What is somewhat surprising is that 2021 so far has not seen significant listing gains compared to 2020, especially because the market conditions to sell a home have never been better and this is in comparison to the worst periods of the pandemic shutdowns. 

It is somewhat shocking that more homes are barley coming to market vs. what occurred during a (hopefully) once-in-a-lifetime pandemic, despite massive year-over-year increases in buyer demand and the pandemic winding to an end. It’s worth mentioning that this could be due, in part, to the prolonged period at home and the shift to remote work in 2020. Many who planned to move this year might have already done so.

Cumulative New Listings Jan-Apr 2021 vs. Jan-Apr 2020

Market Performance Breakdown

• Philadelphia, PA: Median sale prices are up 16.7% year over year in Philadelphia and inventory is at 1 month (down from 4.8 months same time last year)
• Washington, D.C.: Median sale prices are up 10.1% year over year in DC and inventory is 0.8 months (or ~24 days, down from 1.9 months same time last year)
• Baltimore, MD: Median sale prices are up 10% year over year in Baltimore and inventory is 0.9 months (or ~27 days, down from 3.2 months same time last year)
• Orlando, FL: Median sale prices are up 13.5% year over year in Orlando and inventory is 1 month (down from 4 months same time last year)
• Tampa, FL: Median sale prices are up 18% year over year in Tampa and inventory is 0.8 months (or ~24 days, down from 3.7 months same time last year)

At this point, there is double digit year-over-year median list price appreciation in the Mid Atlantic and Central Florida markets, and inventory is at almost the minimum levels mathematically possible across the board.

Anecdotally, increasingly desperate tactics from would-be buyers are becoming the norm: “love letters” from prospective buyers to owners of homes not on the market persuading them to sell, buyers waiving all contingencies including inspection, and buyers submitting multiple offers concurrently on multiple homes knowing they will most likely miss out on all of them.

The good news is that this is not in stagnant market, so listing inventory only needs to tick up in order to get to optimal conditions. The current market situation is kind of a form of a Prisoner’s Dilemma. One of the reasons listing inventory is so low, is that homeowners are stuck in their homes because it’s so difficult to purchase a new one. However, this is a circular problem that requires cooperation to solve. If those “stuck” homeowners all listed their home at the same time then the inventory problem would be solved, and they’d also be able to easily buy in a healthy market with a balanced amount of buyers and sellers. 

It is–without a doubt–the best time in history to be a home seller in any of these markets. And if  homeowner does decide to sell, and others decide to do the same–it will also help them buy a home by increasing inventory.

Mortgage

The other silver-lining: after briefly ticking up, mortgage rates are trending back down toward historic lows, slightly increasing home buyer purchasing power versus a month ago:

Source: mortgagenewsdaily.com

While this is good news for anyone hoping to keep their monthly mortgage payments down, it will do little to cool the white-hot market. If and when mortgage rates finally begin to rise significantly, there will likely be some reduction in demand. 

Conclusion

If homeowners are in a position to buy and sell a home, now is an ideal time to do so. Despite the difficulties buyers may encounter, there are two important factors working in their favor: extremely low interest rates, and a strong seller’s market in which to sell the existing home.

Origination: https://www.forbes.com/sites/mikemaher/2021/06/22/housing-market-outlook-a-sellers-market-buyers-still-have-options/?ss=real-estate&sh=5e23af2a700f 

Potential tax reform and rising inflation may slow down the booming market. Assessing the proposed tax legislation and current market conditions, our crystal ball will help you plan for what’s next.

Right now, trying to predict the impact of federal tax changes on the residential real estate market is a guessing game. “Since no bills have been introduced yet, it’s hard to speculate on some of the effects without details,” says Selma Hepp, Ph.D., Executive, Research and Insights and Deputy Chief Economist, CoreLogic. That said, by assessing the proposed tax legislation in The American Families Plan (AFP) plus current market conditions and possible inflation through the lens of historical market trends, housing economists and Realtors have come up with some solid predictions. Read on for their prognoses regarding various aspects of potential tax reforms.

Increase in Personal Income Taxes and Capital Gains for Higher-Net Worth Individuals

The Tax Cuts and Jobs Act (TCJA) of 2017 reduced the top income tax rate from 39.6% to 37%. Reversing this change (for the top 1%) is a central aspect of the Biden administration’s proposed tax changes, as is ensuring that capital gains are taxed at the same rate as wages (39.6%) for households making $1 million plus.

“There was a real estate boom, and it could end with this type of tax change,” says Daryl Fairweather, Chief Economist at Redfin. “Right now, the housing market is dominated by the wealthy,” she explains. “If we change the structure to tax the wealthy more, they will have less money to spend on real estate and won’t compete as much with middle class buyers.” Investor profits could decrease, as could the rate of home value growth. “Right now, there’s not enough supply,” says Jack Fry, broker-owner of RE/MAX of Reading in Pennsylvania. “However, when demand shuts down and if capital gains taxes increase, investors will find other places to put their money.” On the pro side, though, this type of tax reform could level the playing field for the middle class, says Fairweather.

Reversal of the SALT Deduction Limitation

At this point, the Biden administration has offered no indication that they plan to reverse the $10,000 state and local property and income tax (SALT) deduction cap, which punitively affects states with higher taxes (such as California, New Jersey, and New York). According to Dr. Hepp, “The SALT deduction cap did end up having an impact on sales activity of homes that were on the margin, such as those priced between $1 million and $1.5 million in the Bay Area, as those households saw a material impact on their tax bill and had relatively ‘limited’ income [for that area]. The same could be said for some markets in the Northeast, such as Connecticut.” On the slim chance that the Biden Administration does reverse this deduction limitation, the migration from high to low tax states (such as Florida and Texas) might abate, says Fairweather.

Elimination of Stepped-Up Basis for Gains from Estates

The Biden administration aims to eliminate a provision that allows heirs to rebase inherited assets, thereby avoiding capital gains tax. Specifically, limiting the practice for gains over $1 million ($2.5 million for couples), this could encourage heirs to hold on to inherited homes instead of selling them, says Fairweather, though she doesn’t foresee a major impact on the market.

End of 1031 Like-Kind Exchanges

Moreover, the current administration proposes to end another tax break, which lets real estate investors put off paying capital gains taxes when they exchange one property for a similar property (proposed legislation would apply to gains greater than $500,000). “This would have an extremely negative effect on commercial investments,” says Cathy Kennelly, co-owner and Certified Distressed Property Expert, Signature Realty Associates. “It could be disastrous for a real estate sector that is just starting to recover.” This could encourage investors to hold onto real estate longer instead of selling and buying again, which would reduce inventory at a time when inventory is already reduced, says Fairweather. It could also decrease incentives to become an investor, she adds.

Closing of the Carried Interest Loophole

Many private equity firms invest in real estate — and have been benefitting from a tax break that allows them to reduce capital gains taxes, explains Fairweather. By closing this loophole, such firms might decrease their investment in real estate, which could reduce values of high-end homes and decrease competition for homes, making them more accessible to middle- and lower-income individuals. “Overall, this could be good for middle-class homebuyers who want to live in these homes and not that great for investors and the wealthy,” she says.  

The Big Unknown: Inflation

Upping taxes should give some headwind to inflation, says Fairweather, who feels that the price increases we’re seeing are more of a one-time adjustment. As an example, despite the large increase in home prices, there are already signs that housing price increases could slow down, she adds. Plus, wages are rising, which would balance out increasing prices. So, inflation may impact real estate.

Housing has been a relatively good inflation hedge, according to Dr. Hepp. She points to a CoreLogic blog post, which compared home prices with the consumer price index over a long period of time. According to CoreLogic’s Chief Economist, Frank Nothaft, in general, stock market values have grown more than home prices since 1946 and home prices have increased slightly faster than inflation.

While higher inflation would probably increase the rate of home price appreciation, Dr. Hepp continues, it could also mean higher mortgage rates. Indeed, “Inflation can be a double-edged sword,” says Kennelly. “Your house is worth more, but it would cost more to purchase, which could hinder ‘move-up’ buyers. If interest rates trend higher, it would be an additional concern.” Still, she adds, “There is currently strong demand for homes, which could remain for some time due to the huge population of Millennials, who need homes.”

Origination: https://www.realtrends.com/how-rising-taxes-inflation-might-impact-u-s-residential-real-estate/ 

Cindy Ariosa, senior vice president, regional manager, Long & Foster Real Estate, Chantilly, Virginia; liaison for large firms and industry relations, the National Association of REALTORS® (NAR): For a variety of reasons, the coronavirus pandemic put vast numbers of Americans on the move. March 2021 existing-home sales were up more than 12% compared with March 2020. How long the upward trajectory will last is debatable. But one thing is certain: REALTORS® are fiercely alert to any legislative changes that could impact the industry. Six months into the Biden administration, we’re exploring a few of the issues that matter most to individuals and investors. High on the list is the 1031 exchange, so let’s start with that.

Shannon McGahn, chief advocacy officer, NAR, Washington, D.C.: The 1031 exchange allows investors to defer paying capital gains on the sale of a property if the proceeds are reinvested in another similar property. It has been part of the IRS code since 1921, and for decades, it has brought immeasurable revenue, jobs, investment and economic benefit to the U.S. President Biden’s plan would limit the tax deferral to transactions less than $500,000, and if wealthier investors choose not to sell, it could temporarily keep properties off the market. It’s important to remember that it’s a deferral, not a tax cut or loophole, and when we educate lawmakers on its impact on real estate and community development, they understand its importance very quickly.

Chris Trapani, co-founder/CEO, Sereno Real Estate, Los Gatos, California: Historically, more restrictive and excessive taxes on real estate disincentivize people from selling, which contributes to the lower inventory condition. Lower inventory then adds pressure, causing values to rise, thereby negatively impacting affordability. The 250K/500K exclusion for primary residences, which replaced the rollover of any level of gain provided a primary residence of equal or greater value was purchased within two years rule in 1997, is a perfect example. In the Bay Area, any owner looking at profits exceeding $250,000 for singles and $500,000 for couples is disincentivized to sell, which has contributed to the problem of low inventory and lack of affordability overall. Therefore, if the 1031 exchange goes away, fewer people would sell, and we’d have even less available properties for sale.

Jon Coile, vice president, MLS and Industry Relations, HomeServices of America, Annapolis, Maryland: There have been rumors for decades about the demise of the 1031 exchange, but there’s too much resistance for that to happen. Yes, it helps the affluent, but there are plenty of average people out there who own a couple of rental properties or maybe a little strip mall, and it helps them, too. In any case, coming out of COVID may not be the best time for a lot of investors to change where their money is invested. I don’t see much happening on this until after the pandemic is over.

CA: And the larger issue of capital gains?

JC: If you learn from history, you know that everything is doomed to repeat. In past years, when the capital gains tax went from 20% to nearly double that, there was little impact on any but the richest Americans. Today, we again have a 20% rate, which Biden proposes to double. But once again, there will be little or no impact on anyone earning less than $1 million a year—and only 0.03% of Americans earn that much.

CT: The administration has repeatedly said that the president does not intend to raise taxes on anyone earning less than $400,000 a year, and this capital gains tax plan kicking in at $1 million seems to honor that.

SM: If you double the capital gains tax for sellers, the wealthiest can afford to wait. We educate lawmakers as to the fact that raising the capital gains tax could actually reduce revenue, not bring more in.

CA: What about the first-time homebuyer credit?

SM: Biden’s call to provide a $15,000 tax credit for first-time homebuyers, or up to 10% of the purchase price, is now a bill in Congress that would clearly incentivize more millennials and minorities to jump into the market. In addition to increasing affordability, it could help increase inventory if new tax incentives encourage investors to convert unused commercial properties into residential.

CT: Any time supply is suppressed, values appreciate faster, which we are seeing today—and which prices people out of the market. This tax credit will increase affordability. It’s a great solution for leveling the playing field for buyers.

JC: We are excited about it because it’s cash that turns up on the settlement table to make the home purchase possible. Buying a house is the single biggest investment for most people, and we are in the enviable position of helping them get into the homes that will help them build a nest egg. What I love about Biden’s goal is that increasing affordability extends the opportunity to build wealth for so many more people, especially the underserved—and we can help make it happen. What a noble profession we are in.

Origination: https://rismedia.com/2021/06/13/new-administration-impact-real-estate/ 

An East Hampton property that has been off the market for 75 years has just been listed for a whopping $69 million. 

Named Cima Del Mundo, which translates to “Top of the World,” the Spanish-Colonial estate was initially built in 1925 and underwent design renovation in 1994, according to the Real Deal.

Made up of eight bedrooms and 7½ bathrooms, the compound sits on 2.7 acres of land and boasts 400 feet of ocean frontage on Georgica Beach. 

The home was designed for indoor and outdoor living. Upon entry, a tiled foyer with a curved staircase can be seen with redefined finishes, the listing states. Interior features include an expansive eat-in kitchen, a study, a double-height living room and five fireplaces.

Exterior amenities include an oceanside pool, a pool house and extensive terraces. 

The estate is just one of many Lily Pond Lane addresses that have hit the market in recent years. Businessman Ron Perelman listed his home on Lily Pond Lane last summer, and actress Candice Bergen listed her Hamptons home on the same street in December.

In 2016, hedge-funder Scott Bommer, who founded SAB Capital and is currently the senior managing director of Blackstone, sold three Lily Pond Lane properties in the Hamptons for $110 million in an off-market deal.

Ed Petrie of Compass has the listing.