Happy tax day! Well, maybe not, since tax day has been extended another month. With so much going on in the world and in the country, it’s easy to forget about some things that are traditional and ingrained in our psyche, like April 15 being the most dreaded day on the calendar.
Until a few years ago, April 15 represented a real benefit to homeowners with mortgages. Mortgage interest on primary homes and secondary homes has always been a staple of the real estate industry. Buy a home, take out a mortgage and deduct the interest at the end of the year. However, because of a change in the tax code, deducting mortgage interest may not be as attractive now to homeowners with an increase in the standard deduction and a cap on the deductible amount of mortgage interest.
Believe me, this is not a reason not to purchase a home and take out a mortgage. Mortgage rates are historically low, even if they have ticked up in the last two months. But finding a home to purchase right now will be a challenge with or without a mortgage.
Today’s real estate market is making history every day, breaking records on sales prices and eating up every single property that comes on the market. Are we in a boom, or are we getting ready for a bust? Typically, you could ask five different economists and get five different answers, but most of them now will say that longer-term trends are at play that should keep the housing market hot.
Why is this? For one thing, even with the pandemic on the brink of being over, COVID has forced the workforce to rethink where they live and why they live there. People who moved last year weren’t just thinking of a temporary place to escape during the pandemic, but a real re-evaluation of their lives, and that’s not going to change.
Millennials are also a big influence in the future real estate markets. They are chomping at the bit to buy a home, start families and settle down in a community. But unless their grandparents’ generation finally sells their forever homes, there will be no forever for this generation.
Countries around the globe that are experiencing the same type of housing market have the same worries about the same type of bubble. However, the consensus is that the buying is being driven by real demand rather than speculation, with families looking to upgrade to larger properties in suburban areas as they work more from home.
What’s going on now is the inverse of the previous housing boom in the mid-2000s. At that time, lending standards were downgraded, allowing buyers to purchase properties beyond their means using risky mortgage products.
According to the National Association of Realtors, between 2006 and 2014, about 9.3 million households went through foreclosure, gave up their home to a lender or sold as a distress sale. We are nowhere near that type of activity; in fact, mortgage qualification standards are at the highest they have been in most of our memories. The biggest threat to the housing market now is mortgage rates going up substantially and a serious lack of inventory, which will slow down sales considerably.
At least for this year, you can put off the only thing besides death where you have no choice. As for me, I’m facing it dead on and paying up on April 15, but that’s me – why spend another month thinking about the inevitable? Stay safe.
