Christmas Tax Gift From Uncle Sam

First, I must say sorry for the lack of my writing as we get closer to the end of December. It has been a busy season for us, which is counter intuitive to what the media is saying about the marketplace. Don’t believe all of the hype. There are many areas in the East Bay that are still transacting fairly smoothly. As the year closes, I would say that pricing is the name of the game. This implies that buyers are still in the Bay Area marketplace. They are just looking for reduced prices. This is in correlation with the mood that the media has instilled in this market. Don’t get me wrong, there are many California cities that are currently at a standstill. One only has to drive through places like Antioch or Stockton to see the rows of for sale signs.

Well it appears that just in the nick of time for the Holidays, the US government has issued a tax reprieve for those that will be trying to endure short sales in 2008. The California Association of Realtors stated it best.

Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

One thing I think we can count on is for the government and the Federal Reserve to do all they can to try and lessen the blow of our slowing real estate market. I find it interesting that this market change has brought so much political concern. The changes have been dramatic, but I speculate that much of the media coverage and political interest is generated, because this market deteriorated from the bottom up. The entry level buyer seeking out the American Dream was devastated by the changing mortgage guidelines coupled with dropping real estate values. All the while the top 1% income earners are still able to get loans at fantastic rates under the current mortgage structure. Thus, we are now seeing the political bail out of the bottom of the market. It seems to be the current politically correct bandwagon that Capitol Hill is riding into an election year. How far will this go?  Should we be using interest rates and tax cuts to stabilize our markets or should we let this market wash out and recover on its own? I see much debate erupting in the blogosphere over this very topic. What do you think?   

Thanks kaneda99 for the photo of Uncle Sam.