There has been numerous headwinds to a housing (and commercial real estate) recovery. One is doggedly slow economic growth. Another is doggedly high unemployment rates. But there is another headwind that is not talked about for housing and real estate in general: taxmageddon or the upcoming single largest tax increase in American history.
Simply put, housing consumption will be reduced in Federal taxes increase. But this is occurring just as housing is beginning to stabilize in many parts of the country.
Americans for Tax Reform provide a nice summary of the tax tsunami that is about to hit (unless Congress and the Administration stop it). And the tsunami will be devastating.
First Wave of Tax Tsunami: Expiration of 2001 and 2003 Tax Relief
In 2001 and 2003, the GOP Congress enacted several tax cuts for small business owners, families, and investors (later re-upped by President Obama and Democrat Congress in 2010). The following tax hikes will occur on January 1, 2013:
Personal income tax rates will rise on January 1, 2013. The top income tax rate will rise from 35 to 39.6 percent . The lowest rate will rise from 10 to 15 percent.
Second Wave of Tax Tsunami: Obamacare Tax Hikes
Third Wave of Tax Tsunami: The Alternative Minimum Tax and Employer Tax Hikes
Between the expiration of the Bush tax cuts and the implementation of Obamacare taxes, American households will have LESS to spend on consumption and savings, and that includes housing. We can safely say that housing consumption will not increase when this tsunami hits.
Perhaps this is why The Fed decided to go on a MBS buying binge known as QE3. We have a fiscal disaster looming with massive tax increases so The Fed feels it has to compensate by buying billions of agency MBS.
(Excerpt) Read more at confoundedinterest.wordpress.com ...
