The residential real estate market has no boundaries on pricing.
It’s free enterprise at its finest – no laws, no restrictions, and no limit on where prices can go.
We saw a dramatic example where a model-match tract home on the same street sold for $550,000 more than the last sale the month before!
Many local homeowners can say they’ve picked up another half-million in appreciation in just the last year, which provides one more hurdle to moving.
Their net profit exceeds $500,000, which means they are going to pay capital-gains tax if they move.
Nobody likes to pay tax to Uncle Sam – especially when it might be six-figures!
We’ve seen it with the investment properties, for example. Long-time owners who paid a tenth of the money they can get today who absolutely refuse to sell just because of the taxation. They could still reap hundreds of thousands, or even millions in profit after paying the tax, but it irks them so much to pay the government that kind of money, that they refuse to consider it – and most consider it a shakedown.
It’s the same with residential. If you have to pay the government a big chunk of your profit in taxes, you’re going to think twice. It may even be the last straw, and end up being what prevents you from moving.
The 2-out-of-5 years exemption was created in 1997 and gives married homeowners as much as $500,000 in net profit, tax-free, when they sell their home.
But in 1997, the median home price in America was around $170,000 – and today it is twice as much.
Shouldn’t we revise the rule to reflect the increase?
I think so.
Let’s double the exemption and make it $1,000,000 tax-free.
Politicians would need to agree that the lack of supply is killing the American Dream for the middle class. Without more homes for sale, the pricing will continue to climb until homeownership is beyond the reach of most people – which it already is in many areas.