Landmark Links April 19th – Too Much of a Good Thing


Lead Story… The never-ending quest to figure out entry-level home buying hasn’t recovered continues: Historically, the Federal income tax deductions for mortgage interest and real estate taxes have been a meaningful incentive to own a home rather than rent.  John Burns posted a research piece last week that made a compelling argument that tax breaks for lower priced homes are no longer relevant and it’s impacting the entry level market:

For decades, homeowners benefited from both the financial and psychological benefits of paying less taxes. Home ownership came with income tax savings because mortgage interest plus property taxes easily exceeded the standard deduction allowed by the IRS. For most American homeowners that has not been true since 2008 because:

  • Falling interest rates and home prices have reduced mortgage interest.
  • The standard marital deduction has risen from $1,300 in 1972 to $12,600 today, meaning that the first $12,600 of itemized deductions has no benefit to consumers.

Today, a typical first-time home buyer financing 95% or less of a median-priced US home pays less than $12,000 in mortgage interest and property taxes, which is not enough to warrant itemizing. Even with other deductions that bring the taxpayer over the $12,600 limit, the tax savings are minimal. Years ago, we eliminated income tax savings from our calculation of the rent-versus-buy decision, and I cannot remember the last time I heard a prospective first-time home buyer (not in California or New York) mention income tax benefits as a reason for buying.

This is a classic example of too much of a good thing.  It’s great for families that the standard deduction is now up to $12,600.  It’s also nice to be able to borrow at lower rates.  However, it seems obvious that the greatly diminished tax savings of ownership, when combined with a slow recovery and Millennials waiting longer to form households are having an impact on the decision to rent rather than own.  John made another key point in here that I want to reiterate: this is not as much of an issue in high priced coastal markets where a $600,000 home is considered entry level since interest and real estate taxes combined would exceed the standard deduction.

Politicians have talked for years about eliminating the mortgage interest deduction, much to the chagrin of pretty much anyone in the residential real estate industry (and the delight of apartment landlords).  However, that objective may have already been accomplished through higher standard deductions and low interest rates.  Side note: the mortgage deduction phases out on loans of over $1MM and intrest begins to lose deduct-ability once your income gets above a certain level.


Nostalgia: Human beings have an incredible ability to remember the good and block out the bad as Seth Godin pointed out in a blog piece this weekend.  Remember this any time you hear someone pining for the good old days.  Every era has it’s own set of fears and challenges and the current one is no different.

Death and Taxes: Monday was tax day and, despite a drastically improved economy bolstered by a technology boom, California has a looming problem: it’s growing more reliant on income taxes from a narrow portion of it’s population for revenue.   The top fifth of taxpayers were responsible for 89.4% of revenues in 2013, up from 80.7% in 1994.  The top 1% were responsible for 45.4% of revenues, up from 32.6% in 1994.  Part of the issue here is that the top tier is really the only group that has seen their income go up substantially in that time period.  The other problem is that California has decided to tax rich people heavily rather than pursue a more diverse tax base.  The pitfall here is obvious: you are relying on a very small number of highly mobile people to fund the state.  New Jersey has the same issue and is now paying the price since it’s high taxes drove hedge fund manager David Tepper, formerly it’s wealthiest citizen to tax-friendly Florida causing the state to issue a warning about stability of revenues (yes, you read that right – one rich guy moved his business and residence and the state flipped out).  Some other states rely on sin taxes on items like tobacco.  The problem here should be obvious – less people are smoking (actually a net positive for everyone) which means revenue from tobacco sales is falling.  Rather than seeing the writing on the wall, many are doubling down and raising cigarette taxes by large amounts to make up for lost smokers.  Good luck with that working out well over the long term.


Shell Game: Following up on the Panama  Papers stories from a couple weeks back, the Washington Post ran a story on the extent that shell companies dominate the luxury home market.  The numbers are astounding.  Over 58% of home purchases over $3MM in the US are made by shell companies.  There are several good reasons to use a shell company to buy property, mostly having to do with protection of privacy.  However, as the Panama Paper leak showed, there is a dark side to this as well.  I expect it’s going to get a lot more scrutiny over the next few months.

No Signs of Stopping: Rents aren’t showing any signs of slowing in Southern California despite showing signs of topping out in some other markets.


A Sucker Born Every Minute: You know how everything being sold online is marketed as if it’s deeply discounted? It’s mostly BS.

Chart of the Day



Worker’s Paradise: Hyperinflation of over 180% a year has left citizens of Venezuela without basic necessities like toilet paper (note to self: do NOT shake hands in Venezuela).  Now the government, which controls the currency market can’t even afford decent cell phone service because it’s unable to come up with the cash to pay international suppliers.  This is what happens when your entire economy is based upon $118/barrel oil and oil falls below $40/barrel.

Hot Air: Someone tried to sell a bag of air from Kobe Bryant’s final game and a crazy fan bid $13,600 before the item was pulled from EBay.  Kobe shot the ball 50 times and scored 60 points in an utterly meaningless game in his career finale.  With Kobe’s exit, several high profile LA sports talk radio hosts have been rumored to consider retirement now that they literally have nothing left to talk about (if you don’t live in LA or listen to sports radio, the terrible Lakers are the only thing that most LA hosts discuss which is sad because the city has so many great sports teams elsewhere).

Bad Pick Up Line:  A Georgia man was arrested for spraying a woman in a bar with something called Liquid ASS Fart Spraycausing the bar to clear out.  The manufacture of the product describes it this way:

“Once unleashed, this power-packed, super-concentrated liquid begins to evaporate filling the air with a genuine, foul butt-crack smell with hints of dead animal and fresh poo,” read the description on the Liquid Ass website. “The funny pranks you can pull with Liquid ASS are unlimited.

“Watching the facial grimaces of people and hearing their comments about the part-your-hair gagging stench will have you laughing until it hurts.”

Liquid ASS is even on sale, with a four-pack available online for $25.75, and a six-pack for $37.25.

The same company is also hawking “Premium Fake Dog Doo with Corn & Hair” for $7 on the website.

If interested, you can purchase some of this fine product here (DISCLAIMER: Landmark Links is not compensated in any way for your purchase).

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