I have an idea to solve our nation’s housing and jobs crisis in one quick and east step. But before I tell you what it is, let’s look back in time.
I am recycling some old reports this weekend in preparation of a move and stumbled across a white paper we wrote for a client in 2004 called “The Real Estate Crash of 2006.” The client recommendations in the paper were ignored for the most part. In fact, the client fired us for being a “provocateur,” and incidentally, went out of business the following year in a mortgage lending flameout that was heard around the world.
I found it interesting to look at our predictions in retrospect. Here’s what we predicted:
1. Real estate prices were in a uncontrolled ascent, creating an unsustainable bubble
2. The bubble was created because of too much money chasing mortgage-backed securities, speculator fever, lax underwriting discipline, and appraisals that were based on what the next guy was willing to pay – not the inherent economics in the deal
3. The bubble would end when foreign-backed investors pulled the plug on funding
4. Interest rates would rise dramatically, making investors and their money flee to somewhere else
5. Investment dollars from China and oil-producing countries would redirect the flow of money from mortgage backed securities into the U.S. stock market
Well, we were right on the first three of our five predictions. We had no idea the government would step in and lower interest rates to the levels seen today. And, we missed the mark on where dollars would flow in a post-real estate bust market.
So much for history lessons.
Here’s what we think our country needs to do to resurrect the housing industry in America. It will fix the stuck housing market almost overnight, create tens of millions of new jobs, and jump-start a new era of prosperity in America. Wow, even I can’t believe these words are flowing from my keyboard. Please read on anyway.
I have a plan to provide relief for the many millions of Americans who want and need to move and sell their housing, but can’t because of the crushing impact on finances. These are people with jobs, who make their payments, and are skipping on spending because they are stuck.
The solution occurred to me as I sold my home this month. I paid $499,000 for it in 2006 and sold it in 2010 for $299,900. I won’t bore you with the pain I felt as I dropped the asking price each month to a point where buyers fell off the fence and stood in line to look and a buyer emerged.
I was lucky because I put 50% down on it and financed the balance on a fifteen year note. I walked away with about 20% of my original investment. Albeit it was traumatic to my retirement plans, I somehow feel lucky that I didn’t have to deal with a short sale or ponder the impact of foreclosure like so many of my friends.
My plan for America is simple:
Let homeowners across the economic spectrum like me who avoided foreclosure, or simply wanted or needed to sell, to deduct the net realized “capital loss” on selling our homes off our federal income taxes. Yes, let me deduct my $199,000 loss against my ordinary income.
O.K., cap the deduction, or make me spread it out over a few years – if you must. I understand the so-called “cost” of my plan.
The cash generated by the savings off homeowners’ taxes will be spent on another home, recharge retirement funds, spent at the grocery store, and elsewhere. This could be a financial and confidence-building lift for millions of others like me who sell their homes at a loss.
For those who say our federal government can’t afford to do this, I simply say we cannot afford not to do this.
What do you think?
- Daniel Ross Stiel