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Fiscal Cliff Impact on Housing and the Economy

by Doug Campbell at Sun Bay Associates

So, we've all heard about the fiscal cliff and that it will be bad.  In a recent interview, Lawrence Yun of the National Association of Realtors, gave his opinion of what the impact of the fiscal cliff might be.

Sequestration, the mandatory cuts Congress passed because the Congress did NOT adopt the recommendations of the Super Committee on how to avoid a fiscal cliff, will be tripped at the first of 2013.  Sequestration mandates $100 billion in cuts for 8 years, mainly impacting defense.

Among the many aspects of the fiscal cliff are the following:

  • Payroll tax will increase to 6.2% from 4.2%, an increase in revenue of $110 billion
  • END emergency unemployment benefits, a reduction of $30 billion in spending
  • CUT Medicare reimbursement rates, a reduction of $15 billion in spending
  • a 3.8% surcharge for a limited number of high income individuals, increasing revenue by $20 billion
  • END Bush era tax cuts, an increase of $310 billion in revenue
  • END specific types of business tax expensing, an increase of $60 billion in revenue
  • CUT defense spending by $35 billion
  • CUT non-defense discretionary government spending by $35 billion

All the above theoretically result in a $615 billion reduction in the deficit.

Mr. Yun anticipates that without the fiscal cliff, there would be an increase in the Gross Domestic Product of 2%.  Should the fiscal cliff actually occur, Mr. Yun expects a decrease of 4% in GDP, which would throw the country back into recession.

For 2013, Mr. Yun also expects that without the fiscal cliff, there would be an increase of 2 million net new jobs.  If the fiscal cliff does happen, he anticipates a NET loss of 1-2 million jobs.

One particular source of revenue that Congress is looking at is the Mortgage Interest Deduction.  If completely eliminated, the MID can represent about $90 billion in new revenue, according to Mr. Yun.  Presently, only people with a mortgage can take advantage of the MID.  However, Mr. Yun stated that if the MID is reduced or eliminated, housing prices will be depressed, causing wealth across the board in the housing industry to disappear, thus reducing or eliminating the MID has a negative impact on every homeowner.

One last point from Mr. Yun is that if housing prices rise in the coming year, many homeowners currently "underwater" or owing more than the value of their homes, would see the price increase bring them to even or  above water on the mortgage to value.  This then results in fewer foreclosures.  On the other hand, if housing prices drop, "underwater" homeowners will continue to be "underwater" and there would be more foreclosures.  

In all previous recessions, the housing industry and all the peripheral industries from construction to building supplies, to flooring installers to electricians to roofers to appliance providers to lawn services to many, many more businesses have led the way out of economic hard times.

In short, it behooves not only all homeowners, but the nation's economy in general, for the leadership in Washington to find a solution to the impending fiscal cliff.

Final Morning Coffee for 2012

by Doug & Gwen Campbell at Sun Bay Associates

 

 Monday Morning Coffee

INSPIRATION FOR TODAY:

Men are disturbed not by things that happen, but by their opinions of the things that happen. 
 
- Epictetus (55-135)

 

LIGHTEN UP!
 
Ever feel yourself getting perturbed by something that happens during your day? Ever have the urge to say something about it, when silence might be the best approach? Perhaps you feel the need to make a judgment about each situation that arises
 
Maybe it's time to slow down a bit. As the song says, "Don't worry - be happy!" The truth is - none of us have the right to judge others, nor their actions. We can control only one thing - our own actions. If there is something to be judged, it would be our reaction to things that happen, not the events themselves.
 
In Stephen Covey's "Seven Habits," Habit #5 says, "Seek first to understand, then to be understood." In explaining, Covey states that "People do not see the world as it is; they see it as they are - or as they have been conditioned to be." He goes on to make the simple statement that "When you understand, you don't judge."
 
Once you take the time to understand each situation, there is no longer a need to judge. Interestingly, when others realize that you no longer make those judgments, you will find that they no longer judge you either.
 
Want to free yourself from being disturbed about the events of the day? Just follow the advice of Epictetus, who said, "When considering the future, remember that all situations unfold as they do regardless of how we feel about them. Our hopes and fears sway us, not events themselves."

Monday Morning Coffee for December 10

by

 

Monday Morning Coffee

INSPIRATION FOR TODAY:

"A penny saved is a penny earned." 
- Ben Franklin

WHO WANTS TO BE A MILLIONAIRE?

Waiting for your ship to come in? Think you need to win the lottery to become a millionaire? Waiting for your inheritance to come through? Dream on - but don't hold your breath. The truth is that "steady as she goes" is the watchword for accumulating real wealth. In baseball terms, the method would be to hit plenty of "singles" and "doubles" and forget about the "home runs."

Consider this method for becoming a millionaire: At age 25, begin setting aside just $100 each month. Invest the money at 12% - yes that is do-able! At age 65, you would have accumulated $1,176,477. In other words, if you never increased the $100 per month, regardless of all the raises and increases in income you experienced over your lifetime, you would have over $1,000,000 in your investment account.

Now let's say you received a very modest $1,000 per year increase in pay over your 40 year working life. By putting aside an additional $250 each year (just 25% of your yearly raise), an additional $191,772 would be added to your million-plus nest egg.

Better yet, here's the easiest method. Beginning at age 20, put $2,000 per year into an IRA for just three years. Never add another nickel to the account. At age 65, the account would be worth $1,153,180.

What if you're already 45 years old (the average age at which Americans begin saving)? You would need to put aside $1,100 each month for 20 years at 12% - giving you $1,187,106 at age 65.

Financial security requires patience, persistence, and self-discipline (sort of like real-life). Spend less than you earn, and put the rest to work for you. It's a simple formula that few ever attempt, yet it yields unfailing results!

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Photo of Gwen and  Doug Campbell - Sun Bay Realty Group Real Estate
Gwen and Doug Campbell - Sun Bay Realty Group
at Keller Williams Realty
30522 US Hwy 19N, Suite 107 S
Palm Harbor FL 34684
Doug's Cell 727-741-4189
Gwen's Cell 727-741-7260
Fax: 888-447-7908