SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : The Residential Real Estate Crash Index
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Tradelite who wrote (343)8/28/2001 10:42:39 AM
From: portageRead Replies (1) of 306849
 
Tradelite or anyone - How much do you think the change in the captial gains treatment of home sales affected the recent years' price increases - along with the economic bubble and everything else ?

Because the upper end of house prices went crazy, it seems to me that much of that was supported by downpayments made possible partly because of the cap gains exclusion of $250k/500k on their existing home sales. Outside of stock options recipients, people who bought and sold equities from their savings could mostly not have made the kind of after tax money to support downpayments on these $600k - $1 million plus homes without cashing in on their gains from selling lower cost homes tax free, I'd speculate (I have no data, just using common sense).

So the winners of the pyramid have been those who owned homes prior to the tax law change, or those who bought shortly afterward -- those low down payments would have provided some real equity leverage. Quite a bonus compared to trying to save gains after the almost 50% tax rate on stocks sold within a year in the highest tax bracket, when combining federal and state taxes (at least in California - other states have lower state taxes though). Plus, you just sat there while the home equity goes up - you don't have to spend the time picking the right stocks, sweating out earnings reports, etc.

But what happens now if entry level home buyers can no longer afford the higher costs to get in - especially as jobs get scarce and if mortgage qualification rules are tightened in a downturn ?

The bagholders have been renters who never could get in, and have watched the cascading upward effect of prices on the entry level homes, partly supported by the generous cap gains tax exclusion incentive to purchase. On top of that they've suffered the insult of rapidly rising rents, which may prevent their saving for a downpayment if they want to buy now.

But if prices do retrench, who will the next bagholders be ?
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News