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As Mortgage-Interest Deduction Vanishes, Housing Market Offers a Shrug

The mortgage-interest deduction, a beloved tax break bound tightly to the American dream of homeownership, once seemed politically invincible. Then it nearly vanished in middle-class neighborhoods across the country, and it appears that hardly anyone noticed.

In places like Plainfield, a southwestern outpost in the area known locally as Chicagoland, the housing market is humming. The people selling and buying homes do not seem to care much that President Trump’s signature tax overhaul effectively, although indirectly, vaporized a longtime source of government support for homeowners and housing prices.

The 2017 law nearly doubled the standard deduction — to $24,000 for a couple filing jointly — on federal income taxes, giving millions of households an incentive to stop claiming itemized deductions.

As a result, far fewer families — and, in particular, far fewer middle-class families — are claiming the itemized deduction for mortgage interest. In 2018, about one in five taxpayers claimed the deduction, Internal Revenue Service statistics show. This year, that number fell to less than one in 10. For families earning less than $100,000, the decline was even more stark.

                                    

The benefit, as it remains, is largely for high earners, and more limited than it once was: The 2017 law capped the maximum value of new mortgage debt eligible for the deduction at $750,000, down from $1 million. There has been no audible public outcry, prompting some people in Washington to propose scrapping the tax break entirely.

If the deduction’s decline should be causing a stir anywhere, it is in towns like Plainfield, where the typical family earns about $100,000 a year and the typical home sells for around $300,000. But housing professionals, home buyers and sellers — and detailed statistics about the housing market — show no signs that the drop in the use of the tax break is weighing on prices or activity.

“From the perspective of selling and trying to buy, I don’t see any evidence of that,” said Paul Forsythe, who teaches physical education and coaches football at a high school.

Mr. Forsythe and his wife, Kylie, are selling their four-bedroom, two-bath home on a quarter-acre lot in one of Plainfield’s older developments, which dates to 1997. They are moving with their two daughters to a nearby suburb, closer to the schools where they work. They have owned homes through the ups and downs of the local housing market, which boomed in the early 2000s and crashed in the midst of the financial crisis.

“Right now,” said Ms. Forsythe, a fourth-grade teacher, “people are excited that the market is finally good again.”

Such reactions challenge a longstanding American political consensus. For decades, the mortgage-interest deduction has been alternately hailed as a linchpin of support for homeownership (by the real estate industry) and reviled as a symbol of tax policy gone awry (by economists). What pretty much everyone agreed on, though, was that it was politically untouchable.

Nearly 30 million tax filers wrote off a collective $273 billion in mortgage interest in 2018. Repealing the deduction, the conventional wisdom presumed, would effectively mean raising taxes on millions of middle-class families spread across every congressional district. And if anyone were tempted to try, an army of real estate brokers, home builders and developers — and their lobbyists — were ready to rush to the deduction’s defense.

Now, critics of the deduction feel emboldened.

“The rejoinder was always, ‘Oh, but you’d never be able to get rid of the mortgage-interest deduction,’ but I certainly wouldn’t say never now,” said William G. Gale, an economist at the Brookings Institution and a former adviser to President George H.W. Bush. “It used to be that this was a middle-class birthright or something like that, but it’s kind of hard to argue that when only 8 percent of households are taking the deduction.”

Kylie and Paul Forsythe outside the Plainfield home they are selling. “People are excited that the market is finally good again,” Ms. Forsythe said.
CreditAlyssa Schukar for The New York Times

Mr. Gale, like most economists on the left and the right, has long argued that the mortgage-interest deduction violated every rule of good policymaking. It was regressive, benefiting wealthy families — who are more likely to own homes, and to have bigger mortgages — more than poorer ones. It distorted the housing market, encouraging Americans to buy the biggest home possible to take maximum advantage of the deduction. Studies repeatedly found that the deduction actually reduced ownership rates by helping to inflate home prices, making homes less affordable to first-time buyers.

But the real estate industry said that scrapping the deduction could undermine the value of what is, for most American families, their most important asset. In the debate over the tax law in 2017, the industry warned that the legislation could cause house prices to fall 10 percent or more in some parts of the country.

Price growth has cooled in many markets, including New York and Seattle, but not nearly as much as the most alarming estimates suggested, and not in a pattern that suggests the loss of the deduction was a primary factor. Places where a large share of middle-class taxpayers took the mortgage-interest deduction, for example, have not seen any meaningful difference in price increases from less-affected areas, according to a New York Times analysis of data from the real estate site Zillow.

Skylar Olsen, an economist at Zillow, said that the slowdown in the housing market probably had little to do with the tax law. Home prices have risen much faster than wages in recent years, creating an affordability crisis in many cities that probably made slower growth in prices inevitable.

“Housing markets were burning so hot at an unsustainable pace and they had to come down,” Ms. Olsen said.

The tax law may have had another impact: It capped deductions for state and local taxes at $10,000, which had a particularly large effect in coastal cities and other places where property taxes and real estate values are both high. Those places did see a slowdown in the growth of home prices after the law took effect, although it is not clear whether the two were linked.

The national real estate industry argues that the two tax changes have together played a role in weakening the housing market.

“Clearly the housing market is underperforming in relation to economic fundamentals of job growth, wage growth and mortgage rates,” said Lawrence Yun, chief economist for the National Association of Realtors.

Economists like Mr. Yun and Ms. Olsen will probably debate the law’s impact for years. It is possible, and even likely, that sophisticated analyses will eventually conclude that limiting the mortgage-interest deduction did lead to somewhat slower price growth.

But for most home buyers and sellers, those subtle effects will be washed away by forces that have a much bigger impact: changes to mortgage rates, construction costs and supply and demand trends that vary from city to city and from neighborhood to neighborhood.

The tax law also rolled back the mortgage-interest deduction in a way that minimized the chance that taxpayers would notice its absence. Congress did not take away the tax break; it just changed the law in a way that meant fewer people would benefit from it — and buried the change in a much broader overhaul to the tax code.

But while Washington think tanks plot the deduction’s demise, the real estate industry is still hoping to restore it in some form. Mr. Yun of the National Association for Realtors said that as the housing market weakened, pressure would mount for Congress to restore some of the tax advantages that homeownership has historically enjoyed, although not necessarily in the same form.

For now, though, real estate agents and developers do not see the erosion of the mortgage deduction playing much of a role.

Plainfield’s housing market has been shaped by abrupt changes over the past 30 years. In 1990, a tornado leveled parts of town, killing more than two dozen people and forcing a huge rebuilding effort. At the turn of the millennium, the town had fewer than 10,000 residents. It has since quadrupled, with more growth on the way.

During the housing craze of the mid-2000s, developers leveled corn fields and sod farms to make way for cul-de-sacs. When the crisis hit, activity in many of the new subdivisions froze, said Ellen Williams, a real estate agent with Coldwell Banker in Plainfield who has sold homes in the area for nearly two decades. Only in the past few years has construction restarted in earnest.

CreditAlyssa Schukar for The New York Times

Ms. Williams helped the Forsythes buy their home several years ago, when the housing crash still weighed on the market and the couple was underwater on a townhouse that had become too small for their growing family. They rent the townhouse out now, which means that they still itemize their deductions, including for mortgage interest. They said the deduction was not a factor in the sale of their home this summer or in their purchase of a new one.

Ms. Williams said that has been the case across the market. “I don’t know that it’s been a huge enough change yet,” she said. “People worry about Illinois taxes more.”

In the Forsythes’ ZIP code, housing prices are up 2 percent from the last year, according to data from the online real estate brokerage Redfin. Homes are selling quickly, Ms. Williams said, as she gave a quick tour of a recently listed four-bedroom house backing up to a pond in a nearby community. The hardwood floors were well kept, the kitchen hardware dated to the mid-1990s and the home was listed for $267,000.

“There’s not a lot available in this subdivision,” Ms. Williams said, “so I anticipate it selling quickly.”

Jim Tankersley covers economic and tax policy. Over more than a decade covering politics and economics in Washington, he has written extensively about the stagnation of the American middle class and the decline of economic opportunity. @jimtankersley

Ben Casselman writes about economics, with a particular focus on stories involving data. He previously reported for FiveThirtyEight and The Wall Street Journal.

 

Source: As Mortgage-Interest Deduction Vanishes, Housing Market Offers a Shrug – The New York Times

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Redfin Reports Better-Than-Expected Earnings As Real Estate Tech Startups Seize Momentum

Better-than-expected second-quarter earnings lifted shares of discount real estate brokerage Redfin in after-hours trading Thursday.

Revenue for the quarter was $197.8 million, up 39% from a year ago, while the company reported a net loss of $12.6 million, compared with income of $3.2 million in the second quarter of 2018. Net loss per share was $0.14. All measures were better than analyst estimates.

“The second quarter is a turning point for our company,” CEO Glenn Kelman said in a statement, pointing to expansion of the company’s mortgage business and “instant-offers,” Redfin’s on-demand home-buying service. “The years of work we’ve invested in each of these businesses are now positioning us to be the first to deliver a complete solution at a national scale for people moving from one home to the next.”

Since 2006, the Seattle-based company has expanded to 90 markets, selling more than 170,000 homes worth upwards of $85 billion with a promise of lower transaction costs. Redfin pegs its market share at 0.94%.

But progress on its loftier goal—to make the whole residential real estate process more consumer friendly through tech—has been slow. Most U.S. housing is bought and sold the same way it has been for decades. Thursday’s better-than-expected report comes as a number of real estate companies new and old are announcing new digital-first services they also claim will remove friction.

The startup Opendoor said earlier Thursday that buyers can now use its app to browse, book self-guided tours and submit bids on any home for sale in Dallas-Fort Worth, Phoenix and Raleigh-Durham. Opendoor’s primary business so far is high-tech home-flipping. Homeowners sell their homes to the company online, and then Opendoor spruces up the place and tries to quickly resell it. Zillow believes a similar model will make up the majority of its business within five years.

Compass, a direct Redfin competitor in pairing human agents with homegrown software, on Tuesday announced it had raised a $370 million round of funding at a $6.4 billion valuation. (Redfin’s market cap is about $1.6 billion.) Last week, Realogy—parent company for brokerage brands including Coldwell Banker, Century 21 and Sotheby’s International Realty—announced a partnership with Amazon to connect home buyers with agents.

It is not yet clear whether Redfin will come out ahead when, and if, technology manages to really change the makeup of the residential real estate market. Shares have gained 27% so far this year, although the closing price of $17.72 on Thursday was down from a 2019 peak of $23.45.

For the third quarter, Redfin is forecasting revenue between $223 million and $233 million, which would equal year-over-year growth of between 59% and 66%. Net income is expected in the range of $3.4 million to $6.4 million.

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I am a staff writer covering real estate. Come for the outrageous homes, stay for the insights on what gets built and why. Previously I wrote about the future of money including fintech, Millennials and the economy at large, as well as news from the markets.I graduated from the University of Pennsylvania where I majored in English and minored in art history but mostly worked at the student newspaper – The Daily Pennsylvanian. You can follow me on Twitter @SamSharf and email me at ssharf@forbes.com.

Source: Redfin Reports Better-Than-Expected Earnings As Real Estate Tech Startups Seize Momentum

Foreign Investment In U.S. Real Estate Plunges

The U.S. housing market has hit another stumbling block, as purchases of homes by foreign buyers dropped a dramatic 36%, according to a report by the National Association of Realtors.

The data comes from an annual survey of residential purchases from international buyers, which found that foreign buyers, led by the Chinese, purchased existing properties with a total value of $77.9 billion from April 2018 through March 2019, compared to properties totaling $121 billion in the preceding 12 months.

Investors from China exited the market most dramatically, with purchases falling 56% to an estimated $13.4 billion worth of residential property.

There are many reasons for the plunge, including less economic growth abroad — growth slowed to 3.6% in 2018 and is on track to slow to 3.3% in 2019 — tighter controls on outside investment by the Chinese government, a stronger U.S. dollar and a low inventory of homes for sale, according to Lawrence Yun, NAR’s chief economist and fellow Forbes.com contributor, who called the magnitude of the decline “quite striking, implying less confidence in owning a property in the U.S.”

Most foreign purchases were in Florida, followed by California, Texas, Arizona, North Carolina and Illinois.

While this is bad news for the overall U.S. market, it won’t make a crucial dent in the New York market, as foreign investment hasn’t been part of the market for some time, those in the industry say.

Leonard Steinberg, a broker in New York City with Compass, referred to the recent high-profile Manhattan purchases billionaire hedge-fund manager Ken Griffin, who closed on a $233 million penthouse earlier this year, and Amazon founder Jeff Bezos, who recently bought three condos for a combined $80 million.

“The reality of it is the Chinese billionaire or Russian oligarch were a small fraction of the market,” Steinberg says. “Your best foreign buyers are American buyers—just from other parts of the country.”

Svetlana Choi, a broker with Warburg Realty, said there is still foreign investment in New York, just not for ultra-luxury properties.

“While there are still Chinese investing, they would prefer to invest in an apartment building in Flushing that can bring a far larger return, than an empty super expensive apartment in New York City,” Choi says.

Noemi Bitterman, also of Warburg Realty, notes that as the market continues to decline, more investors may come through.

“My feeling is that now is definitely a time to buy because current prices reflect fair market value and not inflated prices as we saw six to 12 months ago,” Bitterman says. “The market has adjusted and prices are where they should be.”

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I’ve been working as a journalist in the New York metro area for more than a decade and have developed a specialization in luxury real estate

Source: Foreign Investment In U.S. Real Estate Plunges

Blackstone Calls Logistics Its ‘Highest Conviction’ Real Estate Idea After Striking $18.7 Billion GLP Deal

At Blackstone Group, the world’s largest private equity firm, with $512 billion in assets under management, few properties or companies are out of reach. So when the firm strikes a record-setting deal and anoints the sector as a top firm-wide idea, it’s worth listening to.

In real estate, Blackstone is doing just that when it comes to logistics space—the warehouses where the orders of Amazon and other e-commerce giants are delivered in bulk, sorted and sent out to customers. On Sunday evening, the firm disclosed an $18.7 billion deal for the U.S. logistics assets of Singapore’s GLP, inking the biggest private real estate deal in history. And Blackstone isn’t coy about its optimism for the real estate that houses America’s increasingly e-commerce-oriented supply chain.

“Logistics is our highest conviction global investment theme today, and we look forward to building on our existing portfolio to meet the growing e-commerce demand,” Ken Caplan, co-head of Blackstone’s real estate business, said in a statement.

It’s a bold statement coming from Blackstone given that logistics space is probably only noticeable to the average American as they drive along the interstate or make landings at airports on a clear day.

The warehouses Blackstone is buying are often massive white windowless and logo-less boxes bigger than a football field. They sit adjacent to airport runways, highways, large ports and rail hubs. Increasingly, inside these buildings is what looks like science fiction: Massive robots move and sort palettes of goods, drones check inventories, and orders are sifted and sorted on conveyors that have the sophistication of an automotive assembly line.

For Blackstone, Sunday’s deal is a major doubling down on the U.S. logistics market. Its $140 billion real estate investment arm rolled up logistics warehouse operators and formed Indcor, which it sold to GLP for $8.1 billion in 2015. Then the firm’s real estate gurus set their sights on Europe, building pan-European giant Logicor into a $13.8 billion logistics behemoth that was sold to China Investment Corp. in 2017. In buying GLP’s U.S. business, Blackstone is bulking back up with familiar assets, acquiring some 179 million square feet of urban, in-fill logistics assets nationwide, doubling the size of its existing footprint. It also bought back a piece of Logicor from CIC in late 2017.

Blackstone’s global opportunistic real estate funds will acquire 115 million square feet of GLP space for $13.4 billion and its income-oriented non-listed real estate investment trust, BREIT, will acquire 64 million square feet for $5.3 billion. “Our global scale and ability to leverage differentiated investment strategies allowed us to provide a one-stop solution for GLP’s high-quality portfolio,” said Caplan.

Blackstone has its pick of real estate ideas to crow about.

It is one of the biggest office, hotel and single and multifamily property owners in the United States and globally. Its $140 billion portfolio contains 231 million feet of office space globally, 151,000 hotel room keys, 75 million feet of retail real estate, and 308,000 residential units and homes. It built and remains a top shareholder of Invitation Homes, an NYSE-listed single-family landlord with a portfolio of 80,000 homes nationwide. In Chicago, Blackstone owns the Willis Tower, and in Las Vegas it owns the trendy Cosmopolitan hotel and casino. By square footage, logistics space now appears to be Blackstone’s top real estate holding.

The $18.7 billion price tag is a coup for GLP, the seller. Based in Singapore, GLP is was cofounded by entrepreneur Ming Zei Mei, who spun out the international logistics space of Prologis, mostly based in China, Brazil and India. Now GLP, short for Global Logistics Partners, operates 785 million square feet of space, with more than half in China.

Once listed in Singapore, GLP was taken private in 2017 by its cofounder and a consortium of Asian investors including HOPU Jinghua (founded by Goldman Sachs’ former China chairman), Hillhouse Capital and China Vanke Co. In addition to logistics space, GLP is becoming a force in real estate and private equity asset management, with $64 billion under its watch. For the firm, Sunday’s deal is a watershed, reportedly receiving interest from Prologis, a publicly trade real estate investment trust that is the leader in U.S. logistics space.

“GLP was able to leverage our deep operating expertise and global insights in the logistics sector within four years to build and grow an exceptional portfolio,” Alan Yang, chief investment officer of GLP, said in a statement. As it recycles capital, the firm remains bullish on the U.S. “We are looking forward to expanding our footprint in the United States to continue to seize key opportunities in the U.S. market,” Yang said.

For more on Logistics:

See our 2017 feature on Prologis, the world’s logistics leader

Also see our mention of GLP in our coverage of a bet Brookfield made in China.

I’m a staff writer at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, M&A and banks.

Source: Blackstone Calls Logistics Its ‘Highest Conviction’ Real Estate Idea After Striking $18.7 Billion GLP Deal

1031 Exchange – Complete Guide to 1031 Exchange Rules in Real Estate

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A 1031 exchange allows an investor to sell their investment property and defer capital gains taxes as well as depreciation recapture taxes that would normally be triggered on their sale, if they agree to use all of their sale proceeds to purchase one or more new properties of equal or greater value. In total, taxes can be up to 40% of your real estate profits. A 1031 exchange applies to any property that isn’t your primary residence and can even apply to primary residences if they have a home office, Airbnb use, or business use. There are several key rules and regulations that you need to know before you open an exchange. Read more….

 

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Real Estate Markets Cooling Across The Country, And It’s Not Just The Winter Effect – Caroline Feeney

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In December 2008, almost a decade ago exactly, Case-Shiller posted a record 18% price drop in home values across the country as the subprime mortgage crisis reached fever pitch. After a slow and painful recession period, economic prosperity pushed the market out of recovery mode and into a full-fledged real estate boom characterized by double-digit price growth, rock-bottom inventory and surging buyer demand over the past few years. It’s been the lowest of lows, followed by a glorified golden age for the country’s trillion-dollar residential real estate business……….

Read more: https://www.forbes.com/sites/carolinefeeney/2018/11/15/real-estate-markets-cooling-across-the-country-and-its-not-just-the-winter-effect/#2bd98b12172b

 

 

 

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4 Principles of Marketing Strategy – Brian Tracy

A short clip from my Total Business Mastery seminar about the 4 Principles of Marketing Strategy. Want to know: How do I get customers? How do I determine my target markets? What’s my competitive advantage? http://bit.ly/29heNou Move toward any goal, big or small with my FREE guide in the link above.

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Rock House from Grace Bay Resorts In The Turks & Caicos Launches New Homes – Carrie Coolidge

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A new luxury residential resort is being developed on the Turks & Caicos. Rock House, created by Grace Bay Resorts, will be a Caribbean version of a Mediterranean retreat overlooking the ocean. Rock House which will break ground later this year, is now offering a select number of homes for purchase. The resort will officially open to guests in 2020. Located on a majestic 14-acre oceanfront site with 600 feet of frontage and peaks soaring up to 95 feet above sea level, Rock House is the first residential resort tucked into the rugged, untouched limestone cliffs of Providenciales’ north shore……..

Read more: https://www.forbes.com/sites/carriecoolidge/2018/11/02/rock-house-from-grace-bay-resorts-in-the-turks-caicos-launches-new-homes/#2c9694c34220

 

 

 

 

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Boise and Reno Capitalize on the California Real Estate Exodus – Prashant Gopal & Noah Buhayar

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Julie D’Agostino spent 15 years in the San Francisco Bay Area working in tech and considers herself decidedly liberal. Still, she ended up buying a home in a surprising place: deep-red Idaho. The 51-year-old moved to Boise two years ago, attracted to its walkable downtown, lively arts scene, and, most important, cheaper housing. She’s happy there, even though her first winter in 2016 and Donald Trump’s election were a shock……..

Read more: https://www.bloomberg.com/news/articles/2018-10-23/boise-and-reno-capitalize-on-the-california-real-estate-exodus

 

 

 

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Why Giving Your Child A Mortgage May Be Better Than Giving Them A House – Timothy K. McCarthy

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As housing prices continue to climb across the nation’s hottest real estate markets, many young families struggle to buy their first home, particularly in their parents’ more expensive neighborhoods. Wanting to keep their children close, parents, with the financial resources to help, often consider gifting a home to their children. While this tactic can help keep kids nearby, providing a home can have significant tax and other associated implications. But there is another option: giving your child a low-interest home loan……

Read more: https://www.forbes.com/sites/whittiertrust/2018/10/05/a-smarter-gift–why-giving-your-child-a-mortgage-may-be-better-than-giving-them-a-house/#2cbc41e37596

 

 

 

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