In this Real Estate News Brief for the week ending July 25th, 2020… numbers surge for both new and existing home sales, first-time homebuyers may get penalty-free access to retirement accounts, and critics pounce on Airbnb’s request for donations.
We begin with economic news from this past week, and a real estate market that is not bogged down by the coronavirus. The Commerce Department reported that the pace of new home sales surged 13.8% in June. That’s the highest level in 13 years. Low mortgage rates are contributing to that surge along with a growing number of people buying homes that give them more space during the pandemic.
The sale of existing homes also rebounded in June from a low level of sales in May. The National Association of Realtors says they rose at a seasonally adjusted rate of 21%. That’s the highest monthly gain on record for existing homes. But again, they come off a May sales rate that was on the low side. Even with the June bump, sales are still down 11.3% annually. (1)
The weekly jobs report was disappointing. It shows that initial jobless claims rose for the first time since March. The Labor Department says 1.42 million people filed for benefits last week. The number of continuing claims fell by 1.1 million.
Mortgage rates are still a hair’s breadth away from 3% but the 30-year fixed-rate mortgage rose three basis points for an average of 3.1%. The average 15-year fixed-rate mortgage is 2.54%, which is also slightly higher than the week before. Both are very attractive rates for home buyers.
In other news making headlines…
Home Buyers Are On the Move
Redfin reports a record number of people are searching for out of town homes. It says 27.4% of users looked for homes in another metro area during the second quarter of this year. That’s up from 26% in the first quarter and 25.2% one year ago. The analysis is based on search patterns for one million users in 87 metro areas. Users must have searched for at least 10 homes in a particular area for that to count as an out of town search. (2)
The areas attracting the most number of potential movers are inland areas with affordable prices. The top five metros getting the most search attention are Phoenix, Sacramento, Las Vegas, Austin, and Atlanta. Dallas and Tampa are also on the list in the 6th and 7th position. The bulk of the users looking to move are currently living in New York, San Francisco, and Los Angeles.
Redfin analysts say it isn’t just low mortgage rates and a desire for more space that’s driving this trend. They say new work-at-home policies embraced by many companies are giving employees the freedom to move.
“Pandemic Savings” Bill for First-Time Home Buyers
There’s a new bill in Congress that would allow tax-free withdrawals from retirement accounts by first-time home buyers that need money for a down payment. Representative Sean Maloney of New York introduced the bill. It’s called “The First-Time Homebuyer Pandemic Savings Act.” (3)
Under this legislation, homebuyers could withdraw up to $25,000 penalty-free toward the down payment. Maloney says of the bill, “Making sure the next generation of homeowners has the resources they need to buy their first home is going to play a big role in our economic recovery.”
In Defense of the 1031 Exchange
Another bit of political news involves presidential candidate Joe Biden. He proposed a $775 billion dollar “Caring Economy” plan to help provide care for children, seniors and the disabled. He said his plan would be funded by “rolling back unproductive and unequal tax breaks for real estate investors with incomes over $400,000.” Those are cuts featured in President Trump’s 2017 JOBS Act. It would also be funded by making sure high-income earners paid their tax bills. (4)
There aren’t a lot of details on the funding part of the plan, but Bloomberg reports that a senior campaign official said the plan would target the 1031 exchange and prevent real estate investors from using real estate losses to lower their tax bills. That set off a sharp response from the real estate industry including the Real Estate Roundtable in Washington, D.C.
Roundtable president Jeffrey DeBoer said, “Like-kind exchanges create a more dynamic real estate marketplace, ensuring properties do not languish.” And, as Boulder Group president Randy Blankstein pointed out, they are not just for wealthy real estate investors. He says, “The negative impact of changing the 1031 rules would be widespread as a result of the declining property values and reduced transaction activity.”
There have been many attempts to dismantle the 1031 exchange over the years. It was on the chopping block during negotiations for President Trump’s IRS overhaul but lawmakers preserved like-kind exchanges for real estate while eliminating it for other kinds of personal property. (5)
Airbnb Backlash Over a New Host Donation Tool
Airbnb has suffered quite a backlash this week after it introduced a tool on its website that encourages guests to send “kindness cards” with an option to send a donation to their hosts. That set off a storm of criticism on Twitter by people who said they are also struggling financially and wanted to know why Airbnb was asking them to support the hosts.
You may remember, at the beginning of the pandemic, virtually everyone cancelled their reservations and Airbnb ordered all hosts to refund 100% of the money. This is apparently an attempt to help those hosts get back on their feet. The company says 100% of the donations will go to the hosts.
(1) CNBC Article
(2) Redfin Article
(5) Accruit Article