Here’s the net-net of the proposed Republican plan to “lower” our taxes. Mortgage interest deductions would be capped at mortgages $500,000 or less (half the current $1 million) for primary residences. Mortgage interest deductions for second homes would simply vanish. You may be thinking this doesn’t sound bad and you may be mostly right.  While I suspect the $500,000-plus market is relatively smaller than the sub-$500,000 market, the rub may be with the second home deduction.  After all, how many soon-to-be retirees have a $400,000 primary residence and a $250,000 second home?

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Texas Senator John Cornyn is aflutter over this factoid: 52% of Americans pay zero income tax, he says?

Say what? That’s way higher than I would ever dream!

The Joint Committee on Taxation, which scores the cost of tax legislation for Congress, pointed this out in a recent report.

The committee’s report further showed: While 22 percent of taxpayers owed no income taxes, about 30 percent were refunded enough that their net income increased, thanks to special types of tax credits that mostly go to people earning less than $30,000 a year. (The largest such credit is the Earned Income Tax Credit, which cost the government about $55 billion in 2010.)

Some say these “refundable” credits are building blocks of the welfare state, but I wonder, given the complexity of the tax code, how anyone without a CPA can even figure out how to get them. In any case, the high unemployment rate may have inflated this figure and experts estimate that in normal times, 35 to 40 per cent of households owe no income tax. Cornyn argues that we need to clean up these wasteful tax credits before we tax “the rich.”

Of course, the rich have many other loopholes to choose from. And guess where fingers are being pointed: the mortgage interest deduction. The Tax Policy Center says this nifty deduction provides the largest benefits to taxpayers earning more than $200,000 a year. Could be because of deductions on second homes, of which there are about 10 million in the US. And it cost the government $103 billion in 2010.

So now our definition of “rich” has become those who make $200,000 a year or more?

” …the bottom 20 percent of income earners score (save) about $1,000, on average, through the tax code. Middle-income households use tax breaks to reduce their tax liability by an average of $4,000. The top 1 percent of taxpayers — the very rich — reduce their tax liability by nearly $275,000 on average.”

I would argue that the home mortgage tax deduction is used more by middle-income households.

According to the Tax Policy center, getting rid of the estimated $1 trillion in tax breaks would still fall on the backs of the poor: the bottom 20 percent of households would see tax liability increase 275 percent, whereas the top 20 percent would pay about 41 percent more.

I give up. We’ve woven ourselves into a web so complex, I do not even know where to begin unravelling.

I’m just going to say it: is this administration trying to KILL OFF the U.S. housing market?

By now, if you are in the real estate business, you are thinking about serious drinking. Save the calories if you live in Dallas: we did OK. Not great, but OK. The S&P/Case-Shiller report says overall, the nation’s home prices spiraled downward at the end of 2010, even as the rest of the economy gained steam.

National home prices fell 4.1% during the last three months of 2010, compared with 12 months earlier. They were down 1.9% compared with three months earlier.

“Despite improvements in the overall economy, housing continues to drift lower and weaker,” said David Blitzer, spokesman for S&P.

And things may get a lot worse, said Robert Shiller, a Yale economist and half of the Case-Shiller team, in a telephone/web conference after the report’s release.

“There’s a substantial risk of home prices falling another 15%, 20% or 25% more,” he said.

Good Lord, did he say 25% more?

Shiller is referring to talk out of Washington about the government limiting and reducing its presence in Fannie Mae and Freddie Mac, the GSEs that guarantee about three-fourths of the loaning going on right now. Add in that talk of saying goodbye to the mortgage interest deduction — all this threatens home values. Private mortgage money will have to cover most home loans and banks don’t lend money to be nice, they do it to make money. Lending costs will increase which will further hurt home prices.

I know we need to ease out of the GSEs, but baby steps!

So should you buy or wait? I honestly think it’s six to one-half dozen: prices may fall further, but borrowing costs and interest rates could more than make up the difference. If you’re a cash buyer, this is your year.

But Dallas, God bless Dallas. Dallas was listed as one  of six cities that showed an improvement in annual growth rates in December as opposed to November, 2010. And we stayed above our price lows from February 2009. How can we ever forget that was the month when everything cratered!

Problem is, even our treading water here, which is great, is going to be splashed over by all the negative national news.¬† Just keep thinking those positive thoughts, pray that the Middle East calms down and the price of oil doesn’t sky-rocket.

Like the builder I was with today said, this spring market has got to be good! Of course, high oil prices sometimes benefit Texas.

I’m off to church!

_________________________________________________

Good morning.

At 9am EST today, S&P Indices released the year-end results of the S&P/Case-Shiller Home Price Indices. Data through December 2010 reveals the following:

  • The U.S. National Home Price Index declined by 3.9% during the fourth quarter of 2010.
  • The National Index is down 4.1% versus the fourth quarter of 2009, the lowest annual growth rate since the third quarter of 2009 when prices were falling at an 8.6% annual rate.
  • 18 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down compared to December 2009.
  • San Diego and Washington DC as the only two cities where home prices are increasing on a year-over-year basis
  • The 10-City and 20-City Composites were down 0.9% and 1.0%, respectively, from their November levels. They are now only 3.9% and 2.3% above their April 2009 trough. Back in July 2010, they were +7.9% and +6.9% above the troughs, respectively.

The complete press release, as well as the historical data files, is attached to this email. Also attached are the details to today’s 10am teleconference on U.S. home prices featuring presentations by Professor Robert Shiller and Doctor David Blitzer. A Q&A session follows the call.

Declining home prices

Percentage change in home prices in December 2010 compared to year earlier in each market.

Atlanta …………… -8.0%

Boston …………… -0.8%

Charlotte ………… -4.4%

Chicago …………. -7.4%

Cleveland ..……… -4.0%

Dallas ……………. -3.6%

Denver …………… -2.4%

Detroit ……………. -9.1%

Las Vegas ……….. -4.7%

Los Angeles ‚Ķ‚Ķ… 0.2%

Miami …………….. -3.7%

Minneapolis ……… -5.3%

New York ………… -2.3%

Phoenix ‚Ķ‚Ķ‚Ķ‚Ķ… -8.3%

Portland …………… -7.8%

San Diego …………. 1.7%

San Francisco …….. -0.4%

Seattle ……………… -6.0%

Tampa ……………… -6.2%

Washington ………… 4.1%

Composite-20 city …. -2.4%

Source: Standard & Poor’s and Fiserv