Is The Housing Market Going To Crash Again - Expert Predictions For 2018
Today's artificially inflated home prices need to be adjusted back down to a value more in line with the value of the dollar, adjusted for inflation. This means rolling back prices to where they were at before "funny money" flooded the market. Since home appreciation is not consistent in every area of the country, rollback will not be consistent. In some markets, very little price appreciation was experienced. Those areas don't need to undergo a big adjustment. Other areas are even seeing normal appreciation. Some areas, like most of Florida, California, Arizona, and Nevada, need major adjustments. They need to look at rolling back to pre-2003 prices, maybe even earlier.
Tough but necessary medicine. Lenders are already accepting this reality as they write off billions in loan losses and sell off foreclosed homes or negotiate short sales. Rather than have homeowners walk away from their homes, why not invite a compromise? Forgive a significant amount of the loan balance-essentially re-setting the loan more in alignment with the new value of the home and let them keep the home.
Give people willing to take on the responsibilities associated with homeownership some extra help. Yes, I said the responsibilities of homeownership. Let's not make it so easy for first time homebuyers. Their first home may not be their dream home but whatever happened to delayed gratification? We need to encourage first time homebuyers to start small and work their way up.
The government can play an important role by creating a new type of tax free savings account for first time homebuyers who want to save money for a down payment and closing costs. Money put into the account should be exempt from income tax. For example, if $10,000 is set aside in the account over a period of time, then the $10,000 (and all accrued interest) is not subject to income tax. Watch how fast people save up a down payment. Financial institutions will benefit from this influx of new savings, creating another source for mortgages besides Wall Street. Homebuyers will appreciate their investment more when some of their hard-earned dollars are put in as part of the purchase.
We also need to help the housing-related industries that are indirectly feeling the impact of the current housing market. Builders, landscapers, home improvement businesses, etc. Offer existing homeowners tax incentives for improving their homes. There is a lot of work that is needed on a lot of homes. New roofs; newer, more energy efficient heating and cooling systems; energy efficient windows; insulation, etc. This can help businesses as well as the environment.
Investing in rental real estate helps provide housing for those not interested or perhaps unable to purchase their own home. Increase tax benefits for improving existing properties and eliminate passive income limitations. Reintroduce the tax saving incentive of accelerated depreciation. Shorten the depreciable lifetime on properties. Loosen up the 1031 exchange rules to allow more time to move between investments.
In addition to not saving, many are struggling just to make minimum payments on their credit cards. Consumers need help getting a better handle on their debt. First, remove the temptation. Restrict the deductibility of home equity loans used for consumer debt. The deductibility of home equity loans was just too tempting for people. They borrowed against their hard earned equity to finance cars and home entertainment systems. Financing cars for 30 years has got to stop. Restore usury rates. The rates people are paying on consumer debt are unconscionable. When payday loan stores outnumber McDonald's, you know a crisis is looming.
We need to teach people more about real world financial issues. Start in high school, maybe earlier. Kids need to understand that CDs don't just play music. To help people get unburied, restore for a limited time period, the tax deduction on existing consumer interest (such as credit card and auto loan interest).
Motivate people to save. Look what happened in 1974 when Congress enacted the Employee Retirement Income Security Act (ERISA). This Act created the Individual Retirement Account (IRA). It started out simple and was overwhelmingly successful. For many, it resulted in their first savings account ever! Trillions of dollars in assets have been accumulated and IRAs represent the largest component of the U.S. retirement market. With private sector businesses unable to provide the retirement programs, along with the challenges faced by Social Security, more attention needs to be paid to improving this system. Boost contributions to IRAs by restoring tax-deductible contributions to IRAs for everyone.
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