Many of the 20,000 realtors who gathered here for their annual convention last week were fretting about growth controls and the prospects for higher interest rates.
But their chief concern, as they head into a year that’s likely to be dominated by efforts to cut the federal budget deficit, was the growing number of lawmakers who are talking about slashing the amount of annual tax write-offs that homeowners can take for their mortgage interest payments.
Officials of the National Assn. of Realtors (NAR), as well as their high-powered lobbyists, pledged to wage “an all-out war” to keep Congress from further reducing the once-sacrosanct deductions for finance charges on home loans. And, realtors say, homeowners in the high-priced California market could be the biggest casualties if the trade group loses its battle.
“If Congress cuts back on these deductions, it’s going to hit Orange County and Los Angeles and San Francisco and all the other expensive markets a lot harder than anywhere else,” said Nestor Weigand, a Kansas realtor and NAR president.
“Everybody knows how tough it is to buy a home in California. And if you can’t write off all your mortgage interest payments, it’s only going to get tougher.”
A growing number of Congress members have suggested putting stricter limits on the amount of such write-offs as part of their efforts to trim the budget deficit. If those deductions were eliminated entirely, says one federal study, the Treasury would collect an extra $36 billion in 1989.
No congressional representative has suggested completely eliminating mortgage write-offs, but at least three have suggested limiting them to $20,000 a year for a couple filing a joint return.
Weigand said a $20,000 limit wouldn’t hurt most of the homeowners in states such as Kansas because prices are relatively low. The lower loan amount needed to buy a house there generates lower interest charges, so the homeowner wouldn’t be affected by a $20,000 cap.
“But it’s a different story for people who own homes in California and other high-cost states,” Weigand said. For example, in Orange County--where the median-priced home sells for about $226,000--a buyer would likely need at least a $171,000 loan.
Limit Affects Prices
At current fixed rates, that loan would cost the buyer more than $20,000 in finance charges in the first year. Any amount that’s over $20,000 “would be cold cash right out of your pocket because you wouldn’t get any deductions for it,” Weigand said.
It’s a mistake to think that a $20,000 limit would only hurt first-time buyers who have to take on a big mortgage payment, many experts say. The limit could hurt existing homeowners--regardless of how much they deduct each year--because the value of property today partially reflects the value of the interest write-offs that a buyer could obtain.
If those write-offs were reduced, buyers would demand lower sale prices to compensate for their higher after-tax carrying costs. Lower offering prices translate into lower profits for sellers.
“Everybody has a stake in this debate,” said John Tuccillo, NAR’s chief economist. “It doesn’t matter if you’re a first-time home buyer, or if you have owned your home for 20 years.”
Realtors and builders alike complain that slow-growth measures drive up the cost of housing by limiting the number of new homes that are built each year.
Their theory is simply supply-and-demand logic: If fewer homes are being built while demand remains constant, buyers will offer higher prices for the dwindling number of homes for sale and prices will continue skyward.
Voters in the November election apparently bought those arguments. All four measures aimed at curbing growth in San Diego were defeated, as were slow-growth initiatives in Riverside and several other California cities.
So, does the defeat of those measures mean that housing prices will fall according to the law of supply and demand? Don’t count on it, says economist Tuccillo.
“There’s just so much demand in those areas and so little supply that prices will keep going up,” he says. “It’s just that, without those restrictions, the prices won’t go up as much.”
Potholders are “out.” Ice-cube trays are “in.” And the next time a realtor comes to your door to give you a free gift, there’s a good chance it’ll be a spaghetti fork with the agent’s name and phone number on it.
That’s the news from the multimillion-dollar world of “realtor freebies,” those inexpensive gifts agents often pass out in their neighborhood to keep their name in front of local homeowners with the hope of landing new business when the owner eventually plans to sell.
“Name-recognition is the name of the game,” said Cindy Keller, president of Northridge-based David Adam Promotions, a firm that sells the little trinkets to realtors. “It’s not a complicated theory: If you see the realtor’s name around the house every day, you’ll probably call him when you’re ready to sell.”
Cost of Gifts
How much do realtors pay for all those kitchen-door magnets, pencils and note pads they pass out? “It’s really a matter of how much you want to spend, and who you’re trying to market yourself to,” Keller said.
Wooden rulers are a popular item; for about 12 cents each, the realtor gets a name, company logo and phone number on it. The personalized spaghetti fork goes for about 50 cents (“It’s big with Italian realtors,” Keller said), while the old standard--the potholder--sells for about 44 cents.
While rulers and pencils might work well in blue-collar neighborhoods, they’re just not chic enough for trendy parts of town. For $50, Keller sells a silver-plated champagne bucket engraved with the realtor’s name and logo. Then there are the monogrammed his-and-her bathrobes that cost $55 each. “Movie stars don’t really want a calendar,” Keller says.
Not surprisingly, housing the homeless was a fairly big issue at the convention. At a press conference, the realty group announced its long-anticipated agreement with the U.S. Conference of Mayors that calls for the two groups to work closer together to solve homelessness and other urban housing problems.
Realtors and mayors, however, weren’t the only people at the convention willing to help out the homeless: Reporters lent a hand, too.
The National Assn. of Real Estate Editors--a group composed mostly of journalists and industry public relations professionals--turned over a $1,500 check to a local nonprofit agency that tries to provide long-term housing for the homeless. The money came from a workshop some of the journalists held two days earlier, at which attendees paid $25 each.
“Some of us write about homeless people, but this was the first time we’ve ever really done anything about it,” said Jack Snyder, the editor group’s president. He says the group may put on a similar workshop to benefit an Atlanta homeless agency when it gathers there for the National Assn. of Home Builders convention in January.