VOL. 42 | NO. 1 | Friday, January 05, 2018
New tax laws, rising rates bring some new-year angst
Realtors have no choice but to look forward as the new year begins. It would be more pleasant looking back at 2017 since the year was filled with thousands of closings, each with its own drama, turmoil, and excitement. But that always goes with the residential real estate territory.
With a new tax handbook coming into circulation, the landscape will change, although not as dramatically as it would have had the bill that passed the U.S. House of Representatives gone into law.
The compromise capped the mortgage interest deduction at $750,000, which was up from the House’s original $500,000, yet down from the Senate’s $1 million. The mathematical wizards took the average of the two in a compromise befitting King Solomon.
The property tax deduction, once in peril, was saved, but capped at $10,000. One of the most important saves in the final bill was the 1031 property exchange, which will endure. The 1031 property exchange allows property owners to sell their real estate and defer the taxes on any profit realized as long as the sellers identify another similar property and invest in that real estate.
There are millions of property owners who have used the 1031 to acquire numerous properties and have considerable gains relaxing tax-free in the property.
With the mortgage interest deduction, the property tax deduction and the 1031 exchange remaining, the Nashville market should not feel much effect from the new law. The only thing the market has to fear is the lack of inventory. If there is nothing to buy, there is no sale.
Scott Ractliffe, a certified mortgage banker with Pinnacle and a longtime veteran of the Nashville market, says the Mortgage Bankers Association is predicting a 7.3 percent increase in mortgage loan originations across the country. His association predicts refinances will drop by 28.3 percent in 2018.
“No doubt, Nashville is positioned better than most areas of the country with respect to continued population growth and real estate sales,” Ractliffe says, adding the Nashville area will see a 5 to 10 percent increase in mortgage originations.
As rates climb, and they are, many will refinance going to long term loans – 15 or 30 years – and come out of the lower rates found in adjustable rate mortgages. While rates were artificially reduced in the Recession, they have remained low for almost a decade.
If the future repeats the past, rates will climb slowly for a year or two – perhaps a half a point two or three times each year, especially if unemployment remains low. These increases have not affected values or sales in the past.
By mid-2019, with rates at 8 or 8.5 percent, the markets might begin to slow as those with rates lower than 5 percent would rather renovate than forfeit two or three interest rate points.
Alas, there is a presidential election in 2020 and campaigns starting in 2019. At that time, the sitting president might push the magic interest rate housing boom button located in the box next to the nuclear war box. Housing could then show growth and lead the economy out of the stagnancy.
It has happened often. George H.W. Bush pushed the button about three months too late. Timing is everything.
Sale of the Week
If houses were priced based on the value of their residents, 1607 18th Avenue South would have sold for several billion dollars.
The home belonged to the late Betty Nixon, who was a member of the Metro Council from 1975 through 1987. She was the first woman to chair the Budget and Finance Committee. Later, she would chair the Metro Election Committee and worked as an assistant vice chancellor at Vanderbilt University.
As a leader in the community, she ran for mayor twice, losing once to Bill Boner and again to Phil Bredesen. But her passion was the preservation of neighborhoods, and her house on 18th Avenue rests in an area that she championed, and her home epitomized her personality and life.
With 6,382 square feet, the house sold for $1.3 million after Allen DeCuyper (pronounced de Cooper), no stranger to preservation movements, listed the house.
DeCuyper is one of the earlier brokers to make the transition to Parks, and the buyer’s agent in this transaction, Keith Merrill, has joined the recent stampede to the company founded by Bob Parks.
DeCuyper describes the house as an “impressive stone colonial tucked away in an in-town location with 9-foot ceilings, expansive rooms, cascading staircase and three levels.”
The home also has “original detailing and timeless design,” he added.
A home certainly befitting a woman whose achievements are timeless.
Richard Courtney is real estate broker with Christianson, Patterson, Courtney, and Associates and can be reached at email@example.com.