With the start of a new year and about ten days to inauguration day for President-elect Joe Biden, you may be wondering what 2021 holds for the Long Island real estate market. 2020 was a fantastic year for the housing market, despite the challenges presented by the COVID-19 pandemic. Low inventory, high buyer demand, and low interest rates contributed to record home prices in our local market. However, with a new administration on the way, let’s look at whether we can expect the good times to last or if 2021 will bring significant change.
Low Interest Rates Will Continue
Presidents don’t set interest rates and so a new administration will not have much effect on the current low rates. According to Bankrate, the Fed “has signaled that it will keep rates low for years, which will translate to little upward pressure on mortgage rates.” That’s good news for prospective home buyers and for the real estate industry as low interest rates helped fuel the home-buying frenzy on Long Island in 2020. While America continues to fight and recover from the effects of the COVID-19 pandemic, we can expect interest rates to stay low this year.
First-Time Home Buyers Could Receive More Government Assistance
During his campaign, Joe Biden promised to provide more assistance to first-time home buyers. With a Democratic House and Senate, we may seem some of these promises come to fruition in 2021. One notable proposal is the First Down Payment Tax Credit, which could give up to $15,000 to qualified home buyers. This tax credit would be “advanceable” which means “homebuyers receive the tax credit when they make the purchase instead of waiting to receive the assistance when they file taxes the following year.” This would certainly help more prospective buyers move into the market, but it won’t help the already competitive environment we have here on Long Island.
Proposed Higher Taxes for High-Income Earners
President-elect Joe Biden hasn’t been shy about sharing his opinion that wealthy Americans should pay their fair share of taxes. Biden has proposed raising the “income tax rate to 39.6% from 37% for people making over $400,000 annually. That sets the top rate back where it was during the Obama administration.” While this won’t affect the majority of Americans, high earners do fuel the luxury housing market and we may see that affect luxury home buyers and sellers here on Long Island.
1031 Exchanges May Go Away
For those who aren’t familiar with it, a 1031 Exchange allows real estate investors to save money when buying and selling investment properties by deferring the payment of capital gains tax. This is also called a “like-kind exchange.” While Biden isn’t the first to propose eliminating 1031 Exchanges, if the measure passes it would have a major effect on the real estate market. A 1031 Exchange can be used with both residential and commercial properties so if investors aren’t able to defer their capital gains taxes, we could see a big shift in investment behavior going forward.
More Pandemic Aid Likely
Finally, one item we’ll likely see in 2021 from the new administration is more COVID-19 relief. With the latest stimulus package only delivering $600 in assistance to qualified Americans, it’s likely the discussion of those $2,000 stimulus checks will be renewed after inauguration day. This proposal, which failed in the Republican-controlled senate, may stand a chance of passing now that Democrats control the house and the senate. We’ll likely also see more assistance for businesses in a new stimulus package proposal. Increased help for individuals and businesses could help keep some people moving forward with buying a home this year.
Thinking of buying a home on Long Island this year? Not sure if it makes sense for you to sell your current home? Let’s talk! We are here to help you with all your decisions surrounding real estate, whether that’s a home purchase or sale. We’ll advise you on what makes sense for your specific situation and then help you achieve it in 2021. Contact us today!
The Pesce & Lanzillotta Team, at BHHS Laffey International Realty
Office: 516-888-9711
Email: info@pl-team.com
