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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Mick Mørmøny who wrote (44893)	11/20/2005 10:11:28 AM
From: Mick Mørmøny	Respond to of 306849

Real estate could take hit under bipartisan proposal By Elaine Morgillo emorgillo@morgillofinanical.com Nearly a year ago, President Bush established a bipartisan panel to study the federal tax laws. The panel’s mandate was to make recommendations for tax reform that would be revenue-neutral, simplify the tax code and promote economic growth while equitably spreading the burden. On Nov. 1 the panel published its report, and the Treasury Department will make its recommendations to the president by the end of the year. In addition to proposing a reduction in the number of tax brackets and a simplified filing process, both the panel and the Treasury propose eliminating the alternative minimum tax, a complex but outdated system that was designed to ensure that wealthy taxpayers pay their fair share of income taxes by eliminating certain deductions and credits. A recommendation to permanently exempt all dividends and 75 percent of capital gains from U.S. companies from taxation is favored by investors. Married couples would benefit from a proposed reduction of the marriage penalty. However, in order to compensate for the revenue lost by those proposals, there have to be tradeoffs. The panel recommends the elimination of the tax deduction for state and local taxes. And although the panel was instructed to promote home ownership, its most controversial proposals recommend limits for deductions related to real estate ownership. The panel proposes to limit the deductibility of mortgage interest and to eliminate deductions for state and local taxes. As you can imagine, special interest groups have already begun posturing and the political debate will rage for months. How would these proposals affect local taxpayers and the economy? Since New Hampshire has no state income tax, those who live and work here would not be affected by the elimination of the state income-tax deduction, but with real estate prices and property taxes being so high, many property owners with mortgages would likely lose both a portion of their mortgage interest deduction and their deduction for property taxes. The big question is what will happen to the value of real estate if these proposals become law. I believe the real estate market, already beginning to show signs of weakness, will be further damaged. Investment properties in particular are likely to be most affected, since real estate investors rely heavily on tax breaks when calculating the potential profitability of a property purchase. In these situations I like to use history as a guide. In 1986, the tax code endured dramatic upheaval, particularly with respect to tax credits and deductions for investment real estate. The effect of the 1986 tax reform act was disastrous for the real estate market. The sale of real estate investment partnerships dried up nearly overnight, although that wasn’t such a bad thing in my opinion because many of them were abusive. The value of commercial real estate plummeted because the properties were no longer economically viable. New office buildings stood nearly vacant for years. I don’t think the picture is totally bleak this time. It’s not likely that individuals will stop buying homes for themselves just because they might not be able to deduct all of their interest or property taxes. But it might deter some from spending more than they should. All too often in the past few years I’ve heard people tell me that they obtained the highest mortgage they would qualify for because not only was the interest rate low, but the tax deduction reduced their net outlay even further. Many of those people over-extended themselves with the unrealistic hope that their leverage would buy them huge profits in a short time. Tax reform might also put the brakes on out-of-control real estate investing. Perhaps this legislation would finally convince naïve speculators that it’s just not that easy to become rich in real estate. It’s way too soon to speculate about the likelihood that any of these proposals will actually become law. Any reduction in current tax breaks will be politically unpopular, and legislators will be closely watching public opinion polls before declaring their intentions. Since 2006 is a big election year, I think it will be nearly two years before we see any changes. In the meantime, there will be a lot of attention paid to the various proposals and positions, so you’ll have plenty of opportunity to develop your own position. To learn more about the panel’s activities and announcements, visit taxreformpanel.gov . seacoastonline.com Elaine Morgillo is a Certified Financial Planner licensee and president of Morgillo Financial Management Inc., a registered investment advisor offering securities through Raymond James Financial Services Inc., member NASD/SIPC. She has offices in York, Maine, and North Andover, Mass. Contact her at emorgillo@morgillofinanical.com.

To: Mick Mørmøny who wrote (44893)	11/20/2005 3:16:16 PM
From: Mick Mørmøny	Read Replies (2) \| Respond to of 306849

Shoppers in the Malls, if Not on Wall Street By CONRAD DE AENLLE Published: November 20, 2005 NO one can predict with certainty what the stock market will do on any given day, but forecasting a gain on the day after Thanksgiving is a safer bet than most. Investors are inclined to feel good after their day off, and they often express it by bidding up share prices upon their return. But this time around, they may wish to hold off celebrating the unofficial start of the year-end rally. One analyst who studies trading patterns in the stock market warns that longer-term cycles are pointing lower and predicts that the market will provide little holiday cheer next month. Louise Yamada, who heads Louise Yamada Technical Research Advisors, contends that any advance on Friday will provide a better opportunity to sell stocks than to buy them. "Under the surface we're seeing perhaps a weakening pattern in the equity market over all," Ms. Yamada said. While the stock market moved upward last month, she said, technical indicators for the longer term suggest that the market is likely to decline, with a bottom next year. Ms. Yamada's forecast is not entirely gloomy. A 40-week market cycle is still rising, she said, and it may provide a window for investors to lighten their holdings at decent prices before it tips over, an event that she believes is not far off. "November may be a mixed month in the sense that we may get a rally from the 40-week cycle," she said, but longer-term declines "may kick in after that." Measures of internal market strength also foretell weakness, she added. Momentum is waning, suggesting that traders are becoming nervous and more prone to locking in gains instead of letting the money ride. "The underlying technical indicators are not very robust," Ms. Yamada said. "We may not get much of a Christmas rally if people can take a quick profit and close their books." DATA WATCH Two reports will vie to keep investors' heads in the game during this holiday week. The index of leading economic indicators, due Monday, is expected to show a climb of 0.8 percent for October, according to a Bloomberg News poll of economists, after a fall of 0.7 percent the previous month. The University of Michigan consumer confidence reading for this month, to be reported on Wednesday, is predicted to show a small increase, to 81 from 79.9 in October. nytimes.com