Homeownership Takes Biggest Drop Since Great Depression

Homeownership

The U.S. Census Bureau just released a report that showed the homeownership  rate in the U.S. fell to 65.1 percent last year. This is the largest drop since the Great Depression! Now, many believe the U.S. may never return to its mid-decade housing boom peak in which nearly 70 percent of occupied households were owned by their residents.

Also, some are speculating that there is a shift going on where the American dream of homeownership is fading in favor of the idea of the flexibility that renting provides.

Here in San Diego, I would venture to guess that the vast majority of home purchasers from 2005 through 2010 would have been far better off, at least financially if instead of purchasing a home, they had rented one here in San Diego during this time.Naturally, in the real estate and housing industry there is total denial that any trend toward renting is occurring. As this is basically a sales industry, it’s only natural to deny a trend that could jeopardize one’s livelihood. But, there are dark clouds on the horizon for the industry. With the dismal home sales figures and falling home prices in many areas, it would seem that even today’s historic low mortgage rates are not providing their normal incentives for home buying. Plus, once the economy does strengthen, interest rates have to move up. A rising interest rate environment as always put a damper on the real estate market. Add to this, the fact that since he was elected, Pres. Obama has been pushing for elimination of the homeownership tax deduction. Even though many believe that any change in the mortgage interest deduction will be gradual, it will still have a negative impact. Lastly I like to bring to your attention another negative factor for homeownership that has been put into effect, but yet, many do not even realize it. What I’m talking about, is that part of the Obama care help bill is a tax levied upon the sale of real estate. (See my prior post about this healthcare home sales tax )

I realize, that in its current form this 3.8% tax will only apply for those earning more than 200,000 and the first $250,000 of profit will be excluded, but many believe this earning ceiling includes the profit from your real estate sale in the year it was sold. so, it could be possible under this new law that someone who is earning a modest annual income of say $50,000, would believe that they are under the threshold of being affected by this real estate sales tax. But, if they made a $300,000 profit on the sale of a home that they’ve owned for 25 years, now, some believe that the law would say that they are subject to the sales tax because their income in the year of the sale would be considered to be $350,000! Now here comes the disclaimer, I’m not a tax expert or attorney so if you’re concerned about this would be best to consult with your professional. And there is also an old saying that one should never base sale decisions purely on tax consequences. I’m only mentioning it here because it is a negative for the real estate market.