RubinBrown recently attended the mid-year board meeting of the National Association of Home Builders as a member of the Business Management and Information Technology Committee.
The following are some of the highlights:
- NAHB’s economists continue to predict a strong 2016 and 2017. Single family starts are projected to increase to 1.18M in 2016 and 1.28M in 2017. This is equivalent to 60% of starts in the peak. No downturn is projected in the foreseeable future.
- Interest rates for mortgages are projected to rise to something under 5% by the end of 2018.
- The Housing Market Index (HMI) has been over 50 for 26 months.
Lots and Labor
- Everybody everywhere is complaining about the labor shortages. Carpenters (rough, finish and framing), painters, electricians and plumbers are the trades experiencing the greatest shortages.
- Lot availability is becoming a concern in many cities around the country. A recent study noted 64% of builders were experiencing low lot count. If demand continues as projected, there will be major shortages in late 2017 and 2018.
Tax Reform and the Election
As you would expect, the November election has been at the forefront of many in the industry and its potential impact on housing. As evidence of NAHB’s increasing political presence, both Republican candidate Donald Trump and Gene Sperling, economic advisor to Democratic candidate Hillary Clinton made guest appearances at the meeting.
The talk of upcoming tax reform has NAHB staff particularly concerned. Here are some ideas each party have tentatively proposed:
- The Democrats would limit all itemized deductions which include the mortgage interest deduction, real estate taxes, and charitable contributions to a top rate of 28% vs 39.6% today. The Democrats also want to get housing up to 5% of GDP through various incentives. Currently it stands at 3.5%.
- The Republicans are more radical in their approach for tax reform including various proposals as:
- Dropping the highest tax bracket to 25%, but only allowing itemized deductions for mortgage interest and charitable contributions.
- Enacting a 100% expensing provision for everything excluding land with a lower tax bracket. As a tradeoff, there would not be a deduction for business interest. NAHB has taken a strong opposition to this provision as it would likely alter the business economics of the industry.
Much may change between now and next January but some kind of substantial tax reform seems imminent – stay tuned!
- According to a recent NAHB survey, 22% of builders are using drones in the field.
- The Federal Trade Commission is apparently looking at home builder websites for “truth in reviews” issues. Areas noted were non-disclosure of self reviews and “washing” of less than favorable reviews.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
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