Congressman Calvert Member of the REALTOR(R) Party

I had the pleasure of sharing lunch with Congressman Ken Calvert from the 44^th District a week ago.  And, I have to tell you, if it is your hope to once again have a robust economy. One in which the housing industry plays a prominent role, we need more leaders who think like the Honorable Mr. Calvert.

Over the course of lunch our conversation ranged across many topics. But, as you can imagine real estate was the main course of this meal.

We started out the meal oddly enough, by his asking me what the residential market was like currently here in the Inland Empire. My response was that our average days on market appears to be rising. And, despite the fact that money is on sale (we are seeing historically low 30 year fixed rates) buyer activity is still tepid.

He in turn advised me that the commercial market is very similar. And, that a high percentage of sales are coming from investors who have pulled out of the stock market and are positioning themselves in the “historically” more secure real estate market. And, for the most part they are paying cash.

If you are a regular reader of this column you know that I referenced this very trend in the residential market just about a month ago. In fact fully 35% of the homes sold today are sold to investors looking for safe shelter and a reasonable return on their investment. And, they (more and more) are finding that shelter in real estate.

I have often said that you do not need to reinvent the wheel. Rather, it is always wiser to look at what the successful people are doing and mirror their behavior. Restated, I want you to understand that the investors are investing in real estate because today it is more affordable and offers the potential for a greater return than almost any other time in our history. So, emulate their behavior and buy if you can. There is no safer harbor for your money. History has never seen the day when a house and the land it sits on was worth nothing. The same cannot be said for some of the offerings of the stock market.

Another topic of great interest to me was our discussion regarding the dissolution of Freddie and Fannie. The congressman was right on point when he said that it would be irresponsible to arbitrarily dissolve these behemoth organizations without a privately funded secondary market firmly entrenched in the place of Fannie and Freddie. He cannot see that scenario materializing in this economy. And, we both agree that the process to make all of this happen could take ten years or more to achieve.

So, with this in mind he feels the most likely scenario would be a restructuring of Fannie and Freddie so that they remain fiscally sound. And, by doing so we are providing the country a sense of security that only comes with a reliable secondary market. Something the housing industry needs if it is to right itself.

We also spoke of the holy trinity of tax deductions, that being mortgage interest deduction, charitable donations, and Health Care. These issues have always been hot potatoes and today there is no difference. When talking about possible reforms to these and other tax related issues these were his thoughts as to the most likely scenarios.

In regards to the mortgage deduction, he felt that it was unlikely that the mortgage interest deduction would go away completely. A more likely result might be that the interest paid on the amount of a mortgage over five hundred thousand dollars would not be deductible. This would impact a relatively small percentage of homeowners. The deductibility for second homes or income properties however might not survive.

And, while most who buy investment properties like the idea of the tax incentives, few do so specifically because of them. Most people do so as a hedge against inflation, and as a future source for passive income.

In regards to US corporations keeping their profits overseas he had this to say. The United States has the highest corporate tax rates in the world. It is inevitable that companies such as General Electric would invest in foreign countries in order to shelter their income. In fact we incentivize that practice with our tax code. He suggested that one possibility would be to lower our corporate tax rates to Regan era levels thereby making it more desirable to invest at home.

Finally, on tax reform the congressman said it all when he said that it is a fact that forty one per cent of all Americans pay no taxes at all. And, if there is to be true stabilization of our economy, we must broaden the tax base. Take away the Earned Income Credit, and in doing so get a higher percentage of our population sharing the load.

Suffice to say that, I am bullish on our housing industry. It has been my career and passion for the past 19 years. I truly believe that today our discussion led to possible solutions which have haunted the housing market for years. I believe we are moving towards a better market. In part because our leadership understands that the foundation of this economy is the housing industry.

Now go buy something.  It is good for the economy, and it is the foundation for your future.