Taxes. Getting a tax break is oft cited as the reason to buy.
But many homebuyers aren’t able to fully realize the tax savings. For example if one in unemployed for a while and has to pay the mortgage out of savings, the tax savings are gone. In that case, losing employment will cause the homeowner to pay even more, while he’s cash-strapped, since the tax subsidy is gone.
Lower income homeowners who over over-stretch their purchasing power by using toxic mortgages don’t have the income to fully take advantage of tax savings. Remember, a family with 3 kids already has the standard deduction and personal exemptions.
Real estate boosters often cite that foreigners will come in droves to US “glamour” cities thanks to the weak dollar. Foreigners who are not Green-Card holders and taxpayers don’t get a tax break for owning in America. Why would they want to own a condo in San Diego and pay all the associated costs? If they want to vacation in San Diego, they can stay at any number of nice hotels. Getting a Green Card means paying US income tax.
Likewise for rich American folks. Why would they want to own a home in San Diego just to stay there for a few weeks. Might as well stay at the hotel. Want a place to stay after the ball game? Book a limo to take you to a nearby hotel room.
Therefore I posit that buyers bought mostly because of the protential appreciation (as well as the enjoyment). Take away the appreciation and buyers will dry up.
