In this issue
- Tennessee General Assembly adjourns
- All materials prices are surging + the latest on lumber
- Federal tax policy proposals
- US Treasury Sec. Janet Yellen stirs markets with inflation comment, later clarifies
- Housing Industry Advocacy fund – We need your support.
- HBA Member Savings Reminders
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The TN Legislature adjourned last night
The first session of the 112th Tennessee General Assembly has adjourned. HBAT is preparing a condensed summary of legislation that impacts the residential construction industry, our HBA members and businesses in general. In this upcoming report we will highlight the legislation that passed and the bills that failed in 2021.
Taken as a whole our industry had a positive legislative session, but it was not all rosy, there are certainly lessons to be learned. In the months and years ahead, we must invite our elected officials to our jobsites, show them the practical challenges we face, and ask them to support common sense reforms to the non-sensical barriers to our businesses.
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The Price of the Stuff That Makes Everything Is Surging
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As every contractor knows the prices of raw materials used to make almost everything are skyrocketing, and the upward trajectory looks set to continue as the world economy roars back to life.
As we started this year the price of lumber was already high and has since risen higher. Now other materials from steel and copper to corn, commodities started 2021 with a bang, surging to levels not seen for years. The rally threatens to raise the cost of goods from the lunchtime sandwich to gleaming skyscrapers. It’s also lit the fuse on the massive reflation trade that’s gripped markets this year and pushed up inflation expectations. With the U.S. economy pumped up on fiscal stimulus, and Europe’s economy starting to reopen as its vaccination rollout gets into gear, there’s little reason to expect a change in direction. (Read more in Bloomberg)
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Collaboration Between Builders and Appraisers Key to Navigating Rising Lumber Prices, Freddie Mac Says
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As lumber prices continue to rise, home builders face challenges selling homes that accurately reflect the increased costs of construction.
NAHB notes that home builders can mitigate this issue by preparing an “appraisal binder,” which will provide a cost breakdown of the materials used to construct the home. Providing this binder to the appraiser upon his or her arrival to inspect the home will help encourage the appraiser to apply the cost-approach method during the appraisal process, thereby reflecting the cost of materials used to construct the home.
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Building the future one student at a time
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For the past 7 years, Tennessee has selected a day in May for generous giving; the Big Pay Back. This week JOIN others in the community for a day of charitable giving to area nonprofits. As you consider which organizations to support, please do not forget the Tennessee Home Builders Foundation.
The Foundation is the charitable arm of the Home Builders Association of Tennessee that provides scholarships through the David Stauffer Scholarship Fund to Tennessee students. This scholarship was created to honor David Stauffer and his lifelong commitment to the housing industry and the education of future generations of home builders.
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If you are someone who cares about the future of the housing industry and feel strongly about educating young talented individuals to meet the needs of our industry, now is the time to give. Your donations are Tax Deductible.
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The David Stauffer Scholarship is a “matching funds” achievement based scholarship program administered by the Tennessee Home Builders Foundation, a 501(c)(3) non-profit charitable organization.
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Update: Now Skyrocketing Lumber Prices Add Nearly $36,000 to the Price of a New Home
Key Takeaway: Soaring lumber prices that have tripled over the past 12 months has caused the price of an average new single-family home to increase by $35,872, according to new analysis by the NAHB Economics team. This lumber price hike has also added nearly $13,000 to the market value of an average new multifamily home, which translates into households paying $119 a month more to rent a new apartment. Full article.
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Take a Deep Dive into all the factors impacting Lumber Prices
NAHB Senior Economist Paul Emrath provides more analysis on how rising lumber prices have added nearly $36,000 to the price of a new home in this Eye on Housing blog post. Future analysis from NAHB will also examine additional factors, including other building material costs.
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Proposed Tax Changes Would Reshape the Entire Real Estate Industry
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A new income tax rate of 39.6% for the top 1% of earners
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A new capital gains tax rate of 39.6% for the top 0.3% of taxpayers ($1m+ in annual earnings)
- An increase in IRS audits of those who earn $400k+
- Eliminate carried interest deductions
- Eliminate a tax benefit on appreciated assets known as the “step-up in basis.” Combining the estate tax, the new higher capital gains rate and the repeal of step-up in basis could bring total effective marginal rates as high as 61%
But another change would completely reshape real estate…
The tax loophole in question is known as ‘1031 exchanges’
As explained by The Wall Street Journal, this part of the tax code has existed since 1921 and allows investors to defer taxes on real estate gains, as long as the proceeds are reinvested in other properties within 6 months.
In theory, property taxes could be deferred indefinitely. The majority of 1031 exchanges are done by wealthy individuals, often pooling funds together to purchase apartment buildings or commercial real estate.
How much is it worth? Congress estimates that the loophole would save real estate investors $41B+ between 2020 and 2024.
The Biden proposal would eliminate 1031 exchanges
Supporters of the tax code say that deferred taxes are a source of funds for job creation and investment in local communities. Organizations representing farms and Asian-American hotel owners are among those lobbying against Biden’s tax change, per the WSJ. It’s too soon to tell how much of these tax proposals will become reality — but investors of all types are bracing for huge changes.
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US economic gains have become increasingly evident in recent weeks. In March, employers added 916,000 jobs – the biggest burst of hiring since August. Similarly, retail spending has surged, manufacturing output is up and consumer confidence has reached its highest point since the pandemic began.
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Yellen Rattles Markets With Rate Talk
U.S. Treasury Secretary Janet Yellen rattled markets with comments she made on inflation and interest rates. Yellen warned on Tuesday that interest rates may need to rise over time to keep the US economy from overheating, exacerbating a sell-off in technology stocks before she clarified her remarks later in the day. Read her comments in the Financial Times.
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In order to advocate for our industry, we must maintain engagement with our state legislators all year long. Our political activity when elected officials are away from their official duties is just as important as when we are arguing for or against legislation. We encourage all Builders to participate in our Housing Industry Political Action Committee.
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HBAT’s legislative efforts help protect the business interests of the men and women who provide housing for Tennesseans. We closely monitor the issues affecting Tennessee’s home building industry, urging lawmakers to take action. When the legislature is not in session, these goals are carried out through the effort of our Housing Industry PAC activities.
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Participate in Member Savings Programs
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Home Builders preach the benefits of doing business with a member. We want you to do business with like-minded people who support our industry. We also encourage you to take advantage of savings by participating in Rebate Programs.
Builders and Remodelers, if you’re not participating in this rebate program, you’re leaving money on the table. Register and claim your rebates www.HBATrebates.com
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NAHB has Additional Savings Programs for Business Savvy Members
Whether it’s a discount on a product or service or a more efficient way to operate, the smart business person is always looking at ways to cut costs and maximize returns.
Through agreements with more than 20 national companies, NAHB offers exclusive discounts on a variety of products and services that can benefit your business, employees and family.
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