Home Prices Slowly Recover

December 27, 2012 By Elliot S. Schlissel

Currently, the housing market in the United States is in a recovery stage. However, this recovery is uneven and moving very slowly. The big issue Americans are facing, concerning the recovery of the housing market, is the “fiscal cliff”. If the Democrats and Republicans in Congress cannot reach a resolution that President Obama is satisfied with, there will be huge increases in taxes for the large majority of Americans. These tax increases will have a negative impact on the housing market and the slow moving recovery in real estate prices will be derailed. In addition, the country will most likely end up in another recession.

Fiscal Cliff

One aspect of the “fiscal cliff” is allowing the capital gains tax rate to go back up again from 15% to 20%. The second issue affecting the real estate market is the potential that Congress will put a cap on the Mortgage Interest Tax Deduction. The Mortgage Interest Tax Deduction has been, for many years, has been a tax break that encourages home ownership. If the Mortgage Interest Tax Deduction is capped, this will have a negative impact on purchases of higher end homes.

The Mortgage Debt Forgiveness Act of 2007 allows homeowners whose homes go into foreclosure, are subject to short sale or principal reduction from having to pay income taxes on the amount of debt that is forgiven. This also expires January 1, 2013, and is part of the “fiscal cliff” issue.

If the “fiscal cliff” is averted, it is expected that between June 1, 2013, and June 1, 2014, home prices will increase at rate of approximately 3 1/2%.