Homeowners are sitting on a mountain of equity, but many simply can't afford to sell because of an outdated tax law. Now a bipartisan group in Congress is trying to thaw the market's deep freeze, right as the giants of the mortgage industry quietly brace for a bumpier economy.
Congress wants to stop punishing you for selling
If you bought your house a while ago, you've probably watched your property value skyrocket. But try to cash out and you hit a wall. The federal limit on how much home-sale profit you can shield from capital gains taxes hasn't budged since 1997. That leaves long-time owners with a massive tax bill if they move.
That's why the "More Homes on the Market Act" is gaining serious traction in Washington. The bill would double the current limits. It lets married couples filing jointly shield $1 million in profit, according to Realtor.com.
It's a direct attempt to free up inventory. The National Association of Realtors estimates that 29 million households have built up more equity than the current single-filer limit allows them to keep tax-free. This home equity penalty essentially traps older Americans in houses that are too big for them.
Lawmakers are also looking at the other end of the transaction. A separate bipartisan bill introduced by Senator Jon Husted lets buyers pull up to $35,000 from unused college savings plans tax-free to use as a down payment. The goal is simple. Get seniors out of their large family homes without a tax penalty, and give first-time buyers the cash they need to move in.
The mortgage giants are getting nervous
While Capitol Hill tries to get the housing market moving, the financial plumbing that keeps it all running is preparing for a slowdown. Fannie Mae just eliminated 12 senior executive positions across its major business lines.
The cuts come at a strange time. The agency just reported a massive jump in net income. Yet executives are looking at the horizon with caution, as reported by HousingWire.
The tell is in the accounting. Fannie Mae nearly doubled its provision for credit losses in the second quarter, bringing it to $485 million. They see a steady rise in early mortgage delinquencies and openly expect more challenges in the multifamily housing sector. The mortgage machine is trimming the fat and hoarding cash. Why? Because executives expect more borrowers to fall behind on their payments in the months ahead.
The bottom line for you
- If you're waiting for more houses to hit the market, keep an eye on this capital gains bill. Removing the tax penalty for older sellers could finally loosen up the gridlock. That's great news if you're buying a home this year.
- If you're feeling the squeeze of inflation and worrying about your monthly payments, don't wait until you miss one to ask for help. Reach out to your servicer early to explore your options. Review how mortgages handle hardship programs before you actually need them.