UGBA 180 Lecture Notes - Lecture 5: Property Insurance
25 Jun 2018
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Department
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Professor
Lecture 5: Single Family Housing
Factors Driving Homeownership
●Homeownership considered an important goal for indv in the US
●Serves 2 purposes
○Provide shelter
○Investment vehicle
●Housing industry encompasses many players
○Financial institutions, developers and builders, mortgage lenders, RE brokers,
property insurance industry ect
●Tax Incentives
○US policy subsidizes homeownership through the tax code
■Deductibility of mortgage interest
■Deductibility of RE taxes
■Exclude capital gains from taxation at sale
○Rationale: positive externalities associated with homeownership
■Stronger social networks
■Better edu achievement rates
■Lower crime rates
■Greater civic engagement
●Deductibility of mortgage interest
○Reduce taxable income by amount of mortgage interest payments
○Interest deductible on “qualified residences”
■Taxpayer's personal residence plus one more residence
○Beloved by policymakers, largely loathed by economists
■Regressive
■Encourages intensive, rather that extensive, margin of homeownership
●Deductibility of RE taxes
○Reduce taxable income by amount paid in RE taxes
○Cannot use for rental property or business property
○Deductible in the year taxes are paid
●Capital gains exclusion
○For sales of a personal residence, homeowner may exclude from income up to
$250k of gain from sale
■Married couples can exclude up to $500k
○Must have owned and used the home as principal residence for at least 2 of the
last 5 years
○Exclusions applies to only one sale every 2 years
●Factors that affect housing as an investment
○Income and employment
find more resources at oneclass.com
find more resources at oneclass.com
○House prices
○Interest rates
■Higher rates -> lower housing demand
■Lower rates -> stronger housing demand
●Regional economic factors
○Recall: RE investment intrinsically tied to a particular region
○Regional economic factors affect housing demand
■Local business activity
■Industry mix
■Employment growth
●Local market Analysis
Rent vs. Own Decision
●Cost of renting is an important factor
●Personal homeownership decision
●Investor
○Regions with low rent with tend to have lower housing demand
●Rent vs. own analysis
find more resources at oneclass.com
find more resources at oneclass.com
●Step 1: fill out annual loan schedule
○Calculate the monthly payments that correspond with the assumed
mortgage
○Calculate the annual debt service
○Calculate the outstanding loan balance at the end of year 1
●Property data
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Homeownership considered an important goal for indv in the us. Financial institutions, developers and builders, mortgage lenders, re brokers, property insurance industry ect. Us policy subsidizes homeownership through the tax code. Exclude capital gains from taxation at sale. Reduce taxable income by amount of mortgage interest payments. Taxpayer"s personal residence plus one more residence. Beloved by policymakers, largely loathed by economists. Encourages intensive, rather that extensive, margin of homeownership. Reduce taxable income by amount paid in re taxes. Cannot use for rental property or business property. Deductible in the year taxes are paid. For sales of a personal residence, homeowner may exclude from income up to. Married couples can exclude up to k. Must have owned and used the home as principal residence for at least 2 of the last 5 years. Exclusions applies to only one sale every 2 years. Factors that affect housing as an investment. Recall: re investment intrinsically tied to a particular region.
