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Well of the fiscal clip deadline fast approaching my next guest yes fallen off the fiscal cliff would have a devastating effect on the nation's housing market.
He says consumer confidence would get her first and that would impact demand hear -- more Rick -- executive vice president of -- to mortgage holdings.
-- welcome back to show always great to have you here you say the impact going over the fiscal cliff could be devastating how so.
Well the first -- as you mentioned will be consumer confidence and and a lot of what's built the housing market back up into recovery is increased demand.
Absent that demand and had to be the first thing to get hit with consumer confidence we've sort of see prices soften.
Which would would sort of lead the housing market back into the pets.
Right after that though most economists believe that going over the cliff would lead to a recession and spike in unemployment and those two things are pretty much Kryptonite when it comes to housing.
And and couldn't could lead housing back -- -- into the down cycle pretty quickly.
Well you know it we've seen some positive moves in the housing market especially in some marketplaces that are really moving -- -- recovery pretty strongly.
I easing your expectation.
Consumers generally -- gonna sit on their hands until we figure out the fiscal -- I got a -- for example that right now is not a great time to put your house on the market.
It depends on your market appear to place like Phoenix where home prices have gone up 20% -- rear probably is a pretty good time.
They're parts of California -- less than a month's worth of inventory to sell.
And again -- that that supply demand balance that that really is has started the housing market going back up again.
If if you see people that are suddenly afraid that they're not going to be able to hang onto their jobs.
IPC high numbers of people getting unemployed even if you take a look at the hit to disposable income that's likely to happen if we go over the cliff.
That's the difference between people deciding to buy a house or not even -- have a little foreign to qualify for mortgage.
I agree well okay let's talk about two important impacts of people might not be taken it out tonight.
One is the expiration of the debt forgiveness Jack in the number two isn't -- -- about left with mortgage interest deduction.
Let's start with debt forgiveness that expires on December 31 this could impact short sales big time have a big impact on the recovery of the market what would happen -- this.
If this law sunsets which -- properly well.
Well most people don't understand is that in a short sale that the lender forgives a certain amount of debt.
And traditionally the IRS treats forgiven debt as as as regular income you're gonna get tax if you regular tax rate we're now talking about the fiscal cliff.
So everybody's rates are going up.
So somebody gets a 100000 dollars forgiven on on a debt -- mortgage to do a short sale all the sudden asked to pay taxes on that if it goes away.
The other borrowers to get affected your people to get principal balance reduction the loan modifications.
Which the government is pushing so if it's a real real potential -- And of course that -- mortgage interest.
That could go away particularly for higher earners and I think -- have a big impact I don't I can tell you the number of people who tell me that they buy a house because you know they won a deduction you know in part.
Rick do you think that we'll have -- a big impact as well that's something else you're concerned about.
-- absolutely -- there's short term sort of psychological effect but in the long term.
What you're really looking at is is the probability that the upper end of the market and and upper middle part of the market.
You'll see prices start to come down because absent the tax deduction.
A lot of the people that would buy those -- is won't be able to afford the monthly payments so I again theirs -- short term implications of these things and also longer term implications.
Well Rick I next time we have you wanna help we have happier news -- -- going on tonight really appreciate it have a great holiday.
You -- thanks a bunch we'll be.