Housing solutions
Out of the box 1
Housing solutions for economic growth can broaden homeownership and can have a significant impact on the real estate and mortgage markets. However, in order to encourage more people to become homeowners, we need to provide them with incentives that make the process more affordable and accessible. One such incentive is to offer a 1.50% subsidy on an interest rate or discount on conforming loan limits. This would reduce the interest rate, payment and make it easier for people to buy homes; qualifying wise.
Let’s take a look at an example of how this could work. If you were given the choice between a 6.5% 30-year fixed interest rate on a $300,000 loan amount or a rate of 5.00%, which would you choose? With the lower interest rate, you would lose all of your interest write-off, but you would save $265 per month, which would add up to $120,000 over the life of the loan in interest. On the other hand, with the higher rate and with mortgage interest write-off, you would save $76,500 over the same period. A difference of $43,500 without the write-off and the lower rate.
6.50% or 5.00%, Should I Stay Or Should I Go Now?
According to the National Association of Realtors, the median tenure for homeownership in the United States is 10 years. At the 10-year mark, if you had taken the 6.50% rate, you would have received a write-off of $42,900, while with the 5.00% rate, you would have saved $45,000, which is almost a tie after a vacation. This goes to show that even small changes in interest rates can have a significant impact on savings over time.
Now, where does the 1.50% subsidy come from, and who pays for it? There are roughly 10,000,000 households that can buy a $2,000,000 house in the US. For tax years prior to 2018, homeowners could deduct mortgage interest on loans up to $1 million. However, starting in 2018, the Tax Cuts and Jobs Act (TCJA) reduced the maximum. The max limit for new mortgages is now $750,000, while still allowing homeowners with mortgages taken out before December 15, 2017. This means that homeowners are getting squeezed, rather than being incentivized to become homeowners.
Filling the gap
To combat this issue, we can offer a subsidy on conforming loan limits. These are loan amounts that can change or adjust each year for the most part based on the medium loan amount nation wide. The subsidy with the 1.50% in interest rate reduction would only be available to conforming loan limits. Homeowners would have the option to opt into this program or not. The $15-20 billion found from the 10M households would pay for this subsidy. Yes these people would lose their tax deduction, but there’re buying a $2,000,000+ property. Yes, anyone purchasing a 2M+ property would lose their $750,000 cap interest tax write-off. That works out to about $1,500 per month. What does this mean? It’s less than 10% of net income.
In conclusion, providing a subsidy on conforming loans can be a windfall for stronger homeownership and the economy for all. Homeownership is the threshold for all spending. This making it easier and more affordable for people to buy homes. We can encourage them to become homeowners and drive economic growth.
Out of the box 2
The US economy is driven by consumer spending, and housing plays a vital role in this. Currently, the capital gains threshold for real estate is $250,000 for a single household and $500,000 for a married household. These numbers have remained the same for the past 30 years. Doubling them to $500,000 for single households and $1,000,000 for married couples would have a significant impact on our economy. Learn more here.
Housing solutions for economic growth
By increasing these thresholds, we would see a surge in housing. This resulting in more inventory and a flow of money that our economy thrives on. More people would be incentivized to sell their homes! This leading to an increase in real estate transactions and subsequently, an increase in consumer spending. The additional capital gains would kick in after the new thresholds would generate additional revenue for the government. This could be invested in public infrastructure and other initiatives.
Stimulating the real estate market is crucial for the overall growth of our economy. As consumer spending is 70% of the US economy. Housing is the threshold to all spending, a boost in this sector would have a ripple effect on the economy as a whole. It would lead to increased employment opportunities, generate more revenue for businesses, and ultimately, result in an increase in consumer spending. The theme here economic growth, that is the goal.
In conclusion, doubling the capital gains threshold for real estate would be a game-changer for the US economy. By doing so, we can jumpstart the real estate market. Generating more revenue for the government, and create a positive economic impact that would be felt for years to come.
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