Top Real Estate News of 2005

What stories were the most interesting from all the sectors of the real estate community in 2005? The utter destruction of Hurricane Katrina was the leader in more than the real estate news category Thousands of residents lost their homes, loved ones, jobs, and dreams. Many Gulf Coast residents still live in hotel rooms and trailers. The uncertainty of how, when, and where to rebuild will continue for many months for many families touched by the devastation. Hopefully, the Christmas Spirit will rise hopes, and bring a light at the end of the tunnel. Of course, rising interest rates made news this year. The prospect of higher home-loan payments slowed sales as well as investor speculation in many markets. When monthly mortgage costs leap to levels that can’t be countered by higher rents, or low-down payments, property owners would rather walk away than sell at a loss. The Federal Reserve's 12 moves to lift rates did not hinder sales in most popular owner-occupied neighborhoods. That's because consumers, spoiled by a terrific borrowing environment for the past three years, often buy when rates rise in an effort to catch rates before they move even higher. Home-loan rates, expected to rise considerably by the fourth quarter of 2005, finally did exactly that; but they were bouncing lower at the end of November than they were at the end of October. A rather surprising subject that rocked the real estate world late in the year was the suggestion that the mortgage interest deduction on primary residences would be changed, and lowered for most taxpayers itemizing their federal tax returns. The issue of tax reform was rumored a year ago but few analysts believed such a long-standing, seemingly untouchable subject could possibly be cut. The mortgage-interest deduction, seen as a major incentive of home ownership, was put on the table recently by a commission appointed by President Bush. Also being discussed is the elimination of state and local property taxes as income tax deductions. The mortgage-interest deduction is not a dollar-for-dollar tax deduction; rather, it reduces taxable income. What has been proposed is disallowing federal tax deductions for first and second mortgages, and replacing those write-offs with a 15 percent credit on some mortgage amounts. The 15 percent credit would only be for mortgages up to $359,650. Not only would interest on home-equity loans no longer be tax-deductible, but deductions for state and local property and income taxes would also be disallowed. The proposal includes eliminating the alternative minimum tax, adding $100,000 to the current $500,000 tax-free exclusion on home-sale profits, as well as lowering capital-gains tax rates. Realtors, builders, appraisers, title insurers, inspectors, lenders all quickly defended of the mortgage interest deduction. The most vocal group has been the one million-member National Association of Realtors, which is the largest trade association in the United States. "In my opinion it's terrible timing--it's almost irresponsible," said David Lereah, NAR's chief economist. "That would do severe damage to a lot of the local markets across the nation. We are looking at probably a 10 to 15 percent drop in home prices." John Burns, who runs John Burns Real Estate Consulting in Irvine, California, says politicians should learn from their mistakes when it comes to a person's primary residence. "A stable housing market is in the best interest of almost every household in the country,'' Burns pointed out. "In the past, it has been elected officials that have created booms and busts. Let's encourage the elected officials to leave the housing market alone or, at a minimum, implement changes over a long period of time instead of the immediate 'phase-in' of radical changes that has occurred in the past.'' Lastly, builders again heard the message of retirees and future retirees. They don’t want houses built for old people. They want the same easy-living home as everyone else to enjoy, and their preferences will vary. Builders are listening. By Patricia Fuller Miami Real Estate | Fort Lauderdale Real Estate| Sarasota Real Estate

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