Is Doom on the Housing Market Horizon?

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Congress allowed the Mortgage Forgiveness Debt Relief Act of 2007 to expire on December 31, and already the housing market has began to notice changes, especially around the Las Vegas valley.

What was the Mortgage Forgiveness Debt Relief Act of 2007?

Signed into law in December 2007 this act offered relief to homeowners who would have owed taxes on forgiven mortgage debts when completing the short sale process. The IRS views housing debt that is forgiven or written off as income. This act made it so that the IRS would not tax underwater home owners, making the decision to short sale, foreclose or modify their home loan and reduce their principal, much easier.

The expiration of the Mortgage Forgiveness Act is being called on by politicians, realtors and special interest groups around the nation to restore the act and relieve what could be a crippling tax bill for underwater home owners.

The Effects on Las Vegas Housing

The most likely shift we will see in Southern Nevada housing is from short sales and loan modifications to foreclosures and homeowners downsizing. Instead of being incentivized to short sale a property, homeowners will allow their property to be foreclosed. The 12,450 properties in some stage of foreclosure in Las Vegas will continue to increase as short sales all but cease. Rather than modifying a home loan to receive relief from debt, homeowners will be more likely to sell their homes and downsize to a smaller home with a lower mortgage rate.

Housing in Las Vegas is starting to show healthy signs of growth again, and the expiration of the Mortgage Forgiveness Act is more likely to cause a shift rather than another major drop like we have seen in the past.

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