As the U.S. housing industry begins to sputter with signs of life, wealthy homeowners face a different kind of problem: selling their posh condos, villas, and waterfront properties before the onset of the dreaded fiscal cliff at the end of this year.
Owners of luxury homes are panicking at the prospect of shelling out millions of dollars more in capital-gains taxes beginning next Jan. 1, after the Bush tax cuts expire. As a result, they are pressuring exasperated brokers to find them good deals in the next five months. Their soaring desperation could eventually cripple housing prices overall, according to real-estate experts.
"This has become a key issue for sellers," Stephen Games, chairman of Pacific Sotheby's International Realty, a San Diego-based real-estate agency, told CNBC in a recent interview. "Sellers want to get a deal done before the election. They want to avoid the uncertainty."
If the Bush tax cuts are allowed to expire, the current capital-gains tax of 15 percent would increase to 20 percent. Against such a backdrop, anyone selling a second home owned for more than 12 months would have to pay a capital-gains tax on the profit made on the sale -- in other words, the difference between the original purchase price and the selling price -- according to Alan Kufeld, an adviser to high-net-worth families and a consultant at accounting firm Rothstein Kass.
Even as wealthy homeowners cringe at the apparent inevitability of a tax increase, the encouraging trend of average housing prices is swinging in their favor. U.S. home prices increased in April for the first time in eight months, reverting to where they were nine years ago, according to the S&P/Case-Shiller Home Price Indices, a leading measures of U.S. housing prices. From March to April, the composite indices indicated that average home prices rose by 0.7 percent both across 20 cities and 0.8 percent across 10 cities.
This bump in average home prices might not last because mounting fears of the fiscal cliff -- massive tax hikes in the wake of the expiration of the Bush tax cuts, coupled with significant cuts in government spending -- among luxury homeowners could lead to a buildup of unsold inventory that would drive down prices at the top rungs of the real-estate market. Such softening luxury-home prices could place fresh downward pressure on housing prices across the board, even though sales volumes might rise temporarily.
Due to the U.S. housing bubble and the related mortgage meltdown in 2008, more than 1 million properties currently fester in varying phases of foreclosure across the U.S., according to real-estate analytics firm RealtyTrac. However, the luxury market is seeing a trend where home sales are gaining momentum at a much quicker pace than those of regular homes.
Americans are reportedly now eyeing larger homes replete with polished granite, teak cabinetry, pool terraces, two-story foyers, snazzy wine bars, and four-car garages. That trend could be a godsend for luxury homeowners who are desperate to get rid of their properties by the end of this year.
The proportion of new single-family homes more than 3,000 square feet in size has grown by one-third during the past decade, according to data released by the U.S. Census Bureau last month. More than one in four homes built last year were greater than 3,000 square feet -- the highest level since 2007.
The Census Bureau also reported that the average size of a U.S. home rose about 3.7 percent, to 2,480 square feet, between 2010 and 2011. This is nearly 63 percent larger than the average 1,525-square-foot home recorded in 1973.
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