Fiscal cliff: Some analysts say Collier's real estate recovery could be in trouble

For-sale signs: With such a backlog of foreclosures and the market trying to rebound, how many will be in yards? And how far will the prices plummet to make them disappear? NDN file photo

For-sale signs: With such a backlog of foreclosures and the market trying to rebound, how many will be in yards? And how far will the prices plummet to make them disappear? NDN file photo

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— If the fiscal cliff isn't avoided by year's end, the real estate recovery in Florida may stall, some housing industry analysts say.

"If they cannot get it (the fiscal cliff) resolved by the end of the year, it would throw us back into a recession," said Jack McCabe, a Deerfield Beach-based real estate analyst and CEO of McCabe Research & Consulting LLC.

The pride of homeownership and the investment value of owning a home could be in jeopardy, analysts say. Moreover, the elimination of the home mortgage deduction on income tax returns could halt the momentum in the real estate recovery that Realtors say Florida is having.

"To take it (the home mortgage interest deduction) away at this time would be an absolute, major mistake and could be a significant factor in returning us to recession and a housing depression in Florida," said McCabe, adding that real estate is one of the biggest drivers of Florida's economy.

The "fiscal cliff" refers to income tax rate increases that would affect every worker who pays federal taxes, as well as spending cuts that would begin to bite defense and domestic programs alike.

Without the mortgage interest deduction, McCabe said, the market could see prices decrease by 20 to 30 percent rapidly.

However, others say the estimated decrease in housing prices will actually have a positive effect and drive people to buy real estate.

Florida Gulf Coast University economics professor Dean Stansel said if the federal government eliminates the mortgage interest deduction, mortgage rates would fall.

Only about 25 percent of taxpayers claim the mortgage interest deduction, he said.

"I don't think it's going to have a huge effect one way or another," said Stansel, who doesn't believe the government will eliminate the deduction. "I don't think it's as dramatic as they seem to be implying."

But, if the mortgage interest deduction is eliminated, McCabe said people will rent rather then become a homeowner.

McCabe fears that the effect may be devastating and only the wealthiest and foreign corporations will be able to own a house.

Realtors like Phil Wood, president and CEO of John R. Wood Realtors, are concerned but not in a panic mood.

"It's interesting though that the stock market is pretty strong right now," Wood said. "If Wall Street thinks that we will make our way through this situation and come out OK then that is an encouraging sign for the housing market."

Wood said he can't predict what the effect might be if the mortgage interest deduction is eliminated, since it already is limited in certain ways.

"I would prefer for it not to go away," Wood said. "Right now, housing is leading the country out of the recession. It's important to keep that recovery going."

Like many Realtors, Brenda Fioretti, NABOR's media relations committee chairwoman and a managing broker for Prudential Florida Realty in Naples, said the elimination of the income tax home mortgage deduction would harm the real estate market and its recovery.

Fioretti said eliminating the deduction could create a cash flow problem, leading homebuyers to settle and buy a lesser-valued home because homeowners no longer would have the tax savings.

Moreover, Fioretti said, it's already difficult for homebuyers to obtain loans because of rigorous government regulations imposed on lenders.

Fioretti said part-time and seasonal homeowners may be discouraged from buying a second home if the mortgage interest deduction is eliminated.

Denny Grimes, a real estate broker with Denny Grimes & Co. at Royal Shell Real Estate in Fort Myers, said he doesn't think that even a potential cut of the mortgage interest deduction will affect the majority of Southwest Florida homebuyers.

But Grimes said it would give people a reason to pause and think about whether they should rent or own, the opposite effect of what the real estate market needs right now.

If a change to the mortgage interest deduction occurs, Grimes said, it would have an effect on the demand and have a downward pressure on prices.

"Right now, we need that demand to stay constant in order to rekindle the building industry," he said.

The biggest effect would be if the government eliminates the second-home deduction since Southwest Florida is the mecca for winter ownership and second homeownership, Grimes said.

Some say the fiscal cliff could affect the stability of the community.

"The fiscal cliff and impending debt ceiling limit impacts would be more severe in Collier than other communities. Collier's wealth, retirement, service- and housing-based economy is unusually dependent on consumer-driven spending derived from wealthy seasonal residents, visitors and retirees on fixed incomes," said Bill Spinelli, a retired CPA and owner of Titan Homes LLC and affiliated real estate companies, in a statement.

© 2012 marconews.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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