In my newsletter from six weeks ago, I safely predicted a very interesting election. Forget for a moment - if it were only that easy - that we’re far from finality in that regard, and let’s take a look at how the Biden administration will impact the housing market.
Other than rolling back some regulations, Trump’s only announced housing plan (last year, in fact) was ending the Fed’s stewardship over Fannie Mae and Freddie Mac, a move that could be read a number of ways. Well, the pandemic iced that idea, and we’re unlikely to see that change under a different administration for quite some time.
Biden does have a written housing plan in place, for better or worse. Their strategy can only be understood by looking at the specific housing plan as well as the tax plan, as there are proposed cuts - and expansions - that will impact investors. The main theme of the housing plan is that of fair and affordable housing for owners and renters. This is to be accomplished through an infusion of $640 billion over the next 10 years toward affordable/efficient housing, and increases in feel-good stuff like Section 8 and Good Neighbor Next Door. Interestingly, their first housing principle is to have Americans paying 30% or less of their income on housing, which is essentially the formula for Section 8 housing. How this will be accomplished remains to be seen. There’s also a first time home buyer “upfront tax credit” of $15,000. You may remember similar/smaller credits in 2007 and 2008 under Bush and Obama that were, at the time, meant to jump start the ailing housing market. Anyone who’s sat down with me for a one-on-one review of their house value knows I love the housing index, and the tiny ‘bumps’ in the index these credits produced.
Biden’s credit would presumably serve a much different purpose, as our residential market remains strong and inventory is low. In other words, it’s the complete opposite of the 2007-2008 market. So much in fact, it’s nearly impossible for your average first time home buyer to get a house - any house - near their area of employment. In a roundabout way, this would help accomplish the “green” mandate of the housing plan as fewer people would need to commute long distances to work.
As far as the tax stuff goes, the biggest concern from real estate watch dogs was the proposed removal or overhaul of 1031 exchanges. Digging deeper, IF this is implemented it would apply only to owners earning $400k or more/year. Additionally, I don’t think this will see the light of day as 1031 exchanges have been part of the tax code for almost a century, with the National Board of REALTORs always lobbying to keep the provision intact.
It may then surprise many to hear that Biden had more support from large real estate investors than did the real estate developer from Queens. This stemmed largely from the current administration's response to the pandemic, which has decimated the commercial market and will continue to do so for a while. At the end of the day, tax cuts don’t really matter if you have no income, and commercial real estate will continue to flounder if people aren’t freely shopping and dining out.
And of course the stock market has soared today upon news of a promising vaccine. The market had previously rallied based on the results of the election - results that pointed to a divided congress, meaning it would be unlikely for radical bills to be passed without being watered down. The Fed is also unlikely to raise rates for the foreseeable future, so pretty much everyone agrees mortgage rates will stay at their historic lows for quite some time.
My hot take on all this? If you’ve read my posts in the past you know I’m all about fair housing. And unlike many of my colleagues, even some in my Indy Broker Group that I adore, I know affordable housing MUST be addressed. A lot of the stuff in the Biden plan is well-intentioned and fluffy but of course will be hard to implement or is misguided (the whole thing with appraisers in redlined areas, for example). I could go on and on but it’s probably time to go shovel some snow.
The joke has been made a bunch of times by people far more clever than me, but if you’re bummed about the election and want to move to Montenegro, give me a holler. I’m also pretty fluent in Canadian if you need an agent referral up there. And of course if you have an opinion one way or the other I’d love to hear it. I look forward to working with you all soon! Cheers, Crip
[Originally posted 11-9-2020]