Fiscal Cliff Controversy Favors Housing Recovery

Despite the controversy over 'fiscal cliff' negotiations involving increased taxation versus spending cuts (an argument sure to linger on for the foreseeable future), Congress did make some important and forward-thinking decisions which should positively affect the housing market and further stabilize the recovery.

Among these decisions are the renewal of two major tax provisions: the mortgage interest deduction and the Mortgage Debt Relief Act, both extended for another year.

Signed in 2007, the Mortgage Debt Relief Act ensured that debt incurred on loan modifications, short sales, and foreclosures was no longer taxable and was set to expire at the end of 2012.  If not extended, many feared that home owners would not agree to short sales or principal reduction loan modifications when faced with tax bills based on banks' forgiven debts.  This would have led to increased foreclosure starts and overall market instability.  Thankfully, Congress avoided these pitfalls and reaffirmed policies that will help lower the number of foreclosures and support the slow rise in home prices we saw developing over the last months of 2012.

Related Articles:

http://www.cnbc.com/id/100349018

http://www.car.org/newsstand/news/mtgdebt

http://www.dsnews.com/articles/mortgage-debt-relief-act-to-see-another-year-2013-01-02

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2324 S La Salle Ave, Los Angeles 90018

$449,000

MLS #12-582677

3 BR, 3 BA built in 1912

APX SF: 2,016/AS

APX LSZ: 5,793/AS

REMARKS:  EXQUISITE CALIFORNIA CRAFTSMAN HOME THAT HAS BEEN TASTEFULLY UPDATED AND REMODELED WITH THE HIGHEST QUALITY! 3 HUGE BEDROOMS (2 MASTER BEDROOM SUITES EACH W/ BATHROOM). 3RD BATHROOM WAS ADDED WITH PERMITS! CUSTOM CABINETRY, GRANITE COUNTERS & BEAUTIFUL FIXTURES THROUGH-OUT! GORGEOUS NEW HARDWOOD FLOORS (NOT PERGO) NEW FRENCH STYLE VINYL WINDOWS!! ALL NEW ELECTRICAL 200 AMP SERVICE & WIRING, NEW COPPER PLUMBING & MUCH MORE!! DETACHED 1 CAR GARAGE. HUGE CORNER LOT W/ WROUGHT IRON FENCING! PROFESSIONALLY LANDSCAPED W/ NEW SOD & MORE!

1815 Crenshaw, Los Angeles 90019

$525,000

MLS #12-583329

5 BR, 3 BA built in 1912

APX SF: 3,008/VN

APX LSZ: 8,320/AS

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1739 Bronson St, Los Angeles 90019

$489,990

MLS #IV12132377MR

6 BR, 3 BA built in 1913

APX SF: 3,000/ES

APX LSZ: 6,550/PR

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2284 W 28th St, Los Angeles 90018

$349,000

MLS #12-629643

2 BR, 1 BA built in 1907

APX SF: 1,305/AS

APX LSZ: 5,000/AS

REMARKS:  Absolutely adorable Craftsman bungalow in the Bungalow neighborhood of Historic West Adams. The restored home features a spacious and open living and dining rooms, new cook's kitchen with granite counter tops and a separate breakfast area, 2 well sized bedrooms, a newer bathroom, laundry area as well as a bright sun room that may be in addition to the quoted square footage. Upgrades include copper plumbing, updated electrical, newer roof, new exterior paint and new landscaping. The garage is a great home workshop with plumbing. This is a charming as it gets and ready to move into. Property is located within the Jefferson Park HPOZ.

The Congressional Clock Ticks Toward the Cliff

As Congress rapidly approaches the unfortunately named 'fiscal cliff,' with its military and domestic budget cuts ('sequestrations') and threat of double-dip recession, we in the real estate biz are reminded of the dire implications for millions of distressed homeowners and the housing market as a whole. With the balance of power virtually intact post-election, the way forward toward compromise seems as muddled as ever. Meanwhile, 50,000 homeowners go through foreclosure each month and short sales have ballooned to almost 500,000 a year.

Perhaps the most important housing issue in this debate is one we've touched on before: the Mortgage Forgiveness Debt Relief Act. Should this be allowed to expire, homeowners going through foreclosure, short sale or principal reduction will have to pay income tax on the forgiven portion of their mortgage. The National Association of Realtors supports an extension of the bill and says all interested parties agree that it's good policy. "The hold up is in the process. I'm confident it will get done. I just don't know how," says Jamie Gregory, NAR's chief lobbyist. Cold comfort as the clock winds down...

The NAR has also been critical of the Simpson-Bowles commission and its recommendation to streamline the tax code by revamping the mortgage interest deduction (MID) to only include principal homes worth up to $500,000. Any changes to the MID could depreciate home prices by up to 15%, according to NAR, and the association has promised to "remain vigilant in opposing any plan that modifies or excludes the deductibility of mortgage interest."

Nice to know someone's looking out for the interests of the housing market, which were all but ignored during the election. Let's hope some kind of consensus can be reached without doing further damage or compromising the slow-but-steady housing rebound!

RELATED ARTICLES:

Right away, housing challenges for Obama | Inman News | November 7, 2012

Tax break for struggling homeowners set to expire | CNNMoney | Les Christie | November 7, 2012

6 Tax Facts For Home Sellers

Courtesy of the California Association of Realtors and the IRS...

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