The New York Times has an article today on the possible damage that New York's high taxes on real estate transfers, on both sellers and the recording of mortgages, is doing to a possible real estate recovery. "The combined New York State and city transfer taxes, levied whenever a property changes hands, are 3.025 percent, among the highest in the country. In a rising market the taxes are seen as incidental, but when profit margins contract the tax looms larger, and lenders and borrowers are grappling with who will pay it."
There is another side to this issue, however. Perhaps the sky-high taxes on each new mortgage and sale is one reason there was less idiotic flipping and cash-out refinancing in New York than in other places to begin with, as people on housing bubble blogs seem to believe. An owner-occupied residence is a place to live, not an investment, whose actual return is the rent you don't have to pay net of the expenses you do. Unless you are planning to stay a long time — possibly long enough to pay off the mortgage and live rent free — it doesn't pay to buy to begin with.
In any event, what constitutes "recovery?" For-sale housing is still very expensive in the New York area relative to people's incomes. One could argue that "recovery" means a full return to affordability, based on long-held norms with traditional mortgages. We're not there yet. We are still at the sellers holding out for suckers stage, although to a lesser extent than before, in part because less of a previous frenzy here means fewer who are forced to sell at what the market really is.
Young buyers, if purchasing from older sellers moving somewhere else, will be left with the debts and unfunded public employee retirement benefits they are leaving behind. They may have to assume they will have to pay for private school, once the cost of the 25/55 pension works its way through the New York City school system, and had better not be paying a high share of their income for a mortgage too.
So in answer to the Times' issue, the seller should pay the seller's real estate transfer tax, and perhaps the mortgage recording tax, and the buyer ought to be factoring in much higher taxes and a lower quality of life. Paying less, or not buying at all, is the only way to avoid getting stuck with the Generation Greed bill.
"Transfer taxes figure prominently in the protracted battle over the troubled Stuyvesant Town and Peter Cooper Village apartment complex. Appaloosa Management, one of the lenders, is suing in Federal Court to stop a foreclosure, saying among other reasons that it would result in transfer taxes of about $200 million. Appaloosa said the company that now controlled the complex, CW Capital Management, should have sought a bankruptcy, thus avoiding the transfer taxes."
Sorry REBNY and Wall Street, on the commercial side people did insane things in the bubble, and made absurd commissions and bonsues on deals that later went south. They keep looking for a patsy to pick up the pieces, while trying to avoid taking the loss. So they keep "extending and pretending," with very few commercial real estate transactions, and now they want a tax break to subsidize any deal. NO! Foreclosure sales may be the only real estate transfer tax revenue the MTA gets in the next couple of years. And I for one would like to see prices reset to more reasonable levels so that everyone — future investors, businesses renting space, those renting apartments — can have a little breathing room.