FEATURED ARTICLE: How Fewer First-Time Home Buyers Threaten the Real Estate Market

not a surprise that their desire for homeownership dropped during the same period.” Among those who make the leap from renter to owner, a relative- ly large percentage have qualms about their decision. According to Zillow, 4% of those aged 55 and above regret their decision to buy rather than rent, while 17% be- tween the ages of 18 and 34 have misgivings. Many households will not buy a home because they believe future values will decline. A just-issued survey by the NY Fed shows that in five years, 29% of the households surveyed expect home values to fall. And, importantly for first-time buyers, “younger respondents – those under 50 — perceive more downside risk compared to those over 50.” TAX REFORM With the passage of tax reform in 2017, the rules for residential real estate changed significantly. At first this may not seem right. Such things as mortgage interest and property taxes remain potentially deductible. However, the new rules are constructed in such a way that most people will not take tradition- al real estate write-offs. The Tax Policy Center estimates that just 4 percent of all households will claim the mortgage interest deduction under tax reform, down from 21 percent under the old rules. Taxpayers can take either the standard deduction or itemized deductions. Under the new rules many taxpayers will elect not to take shelter write-offs because they can get a bigger benefit with the standard deduction, as much as $24,000 for a married couple. Other taxpayers will be forced to take

most first-time buyers is saving up for the down payment,” according to Mike Fratantoni with the Mortgage Bankers Association. “Lenders need to be active in FHA, be up to speed on Fannie and Freddie’s HomePossible and HomeReady programs, and be in contact with their local housing finance agencies and other potential sources of downpayment assistance.” Mortgages backed through the FHA, VA and USDA are available with little or nothing down, and of- fer liberal underwriting standards. These programs are designed to serve first-time buyers. For instance, more than 80 percent of all purchase mortgages endorsed through the FHA in FY2018 went to first-timers. We know that govern- ment-backed programs work for first-time purchasers. We have decades of evidence to prove it. What we need is more program marketing. There are more than 26,500 state and federal licensed mortgage entities. If they each did one additional first-time buyer loan per month, that would be almost 320,000 extra sales per year, enough to significantly impact the market. STEP 2 Introduce borrowers to down payment assistance plans. There are thousands of potential down payment assistance sources, such things as grants, loans, mortgage credit certificates and lower-cost mortgage insurance. There are special programs for teachers, first responders, health- care workers, veterans and surviv- ing spouses of veterans. There are also programs for energy-efficient homes and visible properties – homes with easy wheelchair access and other accommodations. Rob Chrane, with DownPaymen-

the standard deduction because itemized write-offs are limited. For instance, there’s a $10,000 cap for state and local tax (SALT) deduc- tions such as property taxes and income taxes regardless of how much you actually pay. These changes are not an acci- dent. They are a way for the federal government to increase revenues. The tax reform legislation itself says the “repeal of itemized deduc- tions for taxes not paid or accrued in a trade or business (except for up to $10,000 in State and local taxes), interest on mortgage debt in excess of $750K, interest on home equity debt, non-disaster casualty losses, and certain miscellaneous expens- es” will generate an additional $668.4 billion in new tax revenue. Under the old rules, homeown- ers had substantial tax advantag- es when compared with renters. If a renter paid $1,500 a month for housing, there was nothing to deduct. If an owner had a $1,200 a month mortgage payment for principal and interest, and paid $200 for property taxes and $100 a month for property insurance, a total of $1,500, the tax implications were very different. The owner could write off $2,400 for property taxes. At 4.25% over 30 years, the mortgage had a starting balance of $243,932. The interest write-off in the first year was $10,288. In total, the owner would have at least $12,688 in write-offs unavailable to the renter ($10,288 + $2,400). In the 22% bracket, that’s a tax savings of $2,791. In addition, the owner will accumulate $4,112 in mortgage amortization in the first year, a form of forced savings. Now the rules have changed. The new standard deduction — as much as $24,000 — is equally available to both homeowners and renters.

Since most owners will no longer itemize deductions, the tax advan- tage between owning and renting is now essentially zero for many pro- spective first-time purchasers. The visible tax incentive to own – once a huge selling point for the housing sector – is largely gone. HOWTO GET MORE FIRST- TIME BUYERS INTO THE MARKETPLACE Given the litany of problems and woes faced by first-time buyers, is there anything that can be done to increase their numbers? Steps which do not materially enlarge marketplace risk? The reality is that we have in place a number of options which can be used today to increase first- time buyer activity. More debt and other rising costs directly impact potential buyers' ability to save money for the down payment on their home. The down payment has long-been the first-time buyer's biggest challenge because they don't have the proceeds of another home sale to help fund their down payment and closing costs.” ROB CHRANE

STEP 1 Make better use of what we have. “The biggest barrier facing

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