Last week, President Trump had his ‘come-to-Jesus’ moment and realized he needs to stimulate the housing market. By Thursday, he arranged to buy $200 billion in MBS in order to cause lower mortgage rates.

Boom – mortgage rates in the 5s will stimulate demand!

How about the supply-side?

The doubling of the capital-gains tax exemption is on the table with Congress. If and when it passes, what will be the effects?

We’re only guessing that it will cause more homeowners to sell their home. I’m here to testify that the #1 reason I hear from homeowners as to why they won’t move is because of the taxes, so it’s been a major hurdle in their mind.

Will a tax change cause them to move now?

Will there be a flood of listings?

Let’s be specific about what we’re taking about, because we can quantify it. It matters most to those who have at least $1 million in capital-gains, and we know that the first half of it is already exempt. I’m not an accountant, but I’m assuming the fed and state tax on the other $500,000 in equity will be around $160,000.

So, the whole conversation is about saving $160,000 in taxes.

First, let’s identify who won’t move:

Those who are 75+ years old. It’s probably too late. They’ve been comfortable in their home and neighborhood for decades, health is in decline, and the mountain of stuff needs to be sorted. No thanks, we’re good here.

The affluent. They already have a cool Boston luxury condo, and they don’t need to uproot everything and try to find a better Boston condo for sale over a measly $160,000.

Landlords. The law only applies to the sale of a primary residence lived in for two out of the last five years.

Those who built $600,000-$750,000 in equity. They already get the first $500,000 exempted; so, saving $50,000 to $80,000 in taxes isn’t enough to uproot everything and move.

Those who built $1,250,000+ in equity. Ok, great – they save the $160,000 but they still have to pay six figures on the difference. They are still mad and won’t uproot.

The ignorant. Many will have already decided that they aren’t moving because of taxes and have tuned out. They won’t be able to hear the news.

Recent buyers. They don’t have the additional equity yet.

Let’s note that anyone in the above categories who has an estate worth less than $14 million knows that they can die with the house and their entire equity will go to the heirs, tax-free. It means that the homeowner must have a fairly good reason to move in the first place.

Boy, that narrows it down. Who’s left?

It leaves those who have gained $750,000 to $1,250,000 in equity since they bought the home – on top of the improvements they’ve done. Those who are 50-70 years old who can tolerate moving from a house to a condo or those who don’t mind leaving town.
Yep – it will be the empty-nesters.
Empty nesters who say, “I wasn’t planning on moving, but now that I get an extra $160,000, let’s go!” They probably exist, but they have more hurdles. Primarily, they need to completely disrupt their life and leave all the comforts of home, PLUS move to a new area – probably outside the downtown Boston metro area.

I don’t think the doubling of the tax exemption is going to change much. Those who have already decided to move were willing to eat the $160,000 in additional taxes anyway, so it will be found money to them. It’s the shadow inventory that could be unleashed with that one extra reason to finally move.

It will cause additional listings in some areas, but that’s it.

Should sellers wait until the law is approved?

If the $160,000 is a lot of money to you, then yes. There will be other sellers in your neighborhood who are thinking the same way and if they dump their old half-baked homes onto the market, it will cause a real price war. You could lose $160,000 in equity in a month or two, so be the first to go!