This Week on The Floor

• The “flight to crap” trade and DORK stocks: everything you need to know about the latest meme stock mania

• More tax cuts on the horizon from the Trump administration? We break down the proposal to eliminate capital gains on real estate

Markets Recap / Deal News

Interviewing this week? Here’s some content for your conversation.

Un-”Cap”ping the Real Estate Market

Is removing the capital gains tax on real estate necessary…or even wise?

On Tuesday, President Trump signaled support for a potentially massive shift in U.S. housing tax policy. He told reporters he is considering backing Rep. Marjorie Taylor Greene’s bill that proposes eliminating federal capital gains taxes altogether on the sale of primary residences. 

Why?

According to Greene, the purpose of the bill is to eliminate the so-called “stay put penalty”. Currently, homeowners benefit from a $250,000 exclusion ($500,000 for joint filers) on capital gains derived from the sale of a primary residence occupied for a minimum of two of the past five years. This number has remained unchanged since Section 121 of the tax code was enacted in 1997.

In 1997, the median home sold in America traded for approximately $145,000.  As of January 2025, that number is around $417,000. So while the median home price has nearly quadrupled, the tax exemption remains unchanged from 30 years prior. 

These numbers also fail to capture the extreme upside of the higher end of the real estate market, especially in areas that have seen massive relocation in recent years, like Greene’s state of Georgia in the Southeast. According to a study conducted by the National Association of Realtors (NAR), 34% of homeowners (~29mm Americans) would exceed the $250k threshold if they were to sell their homes. Some 10% (~8mm Americans) would surpass the $500k threshold for joint filers. 

In a statement announcing her proposed “No Tax on Home Sales Act”, which would eliminate capital gains taxes on the sale of a primary residence altogether, Greene says “homeowners who have lived in their homes for decades, especially seniors in places where values have surged, shouldn’t be forced to stay put because of an IRS penalty…my bill unlocks that equity, helps fix the housing shortage, and supports long-term financial security for American families”.

Trump, in his conversation with reporters at the White House, suggested the proposal would have a similar effect as lowering interest rates, something he’s been calling for since his inauguration: “if the Fed would lower the rates, we wouldn’t even have to do that. But we are thinking about no tax on capital gains on houses.”

The theory here is that older, wealthier homeowners are more likely to downsize or relocate if the tax burden associated with the move is reduced, unlocking more equity in their homes without penalty. Proponents say this would ease inventory and affordability concerns in overheated markets with low supply.

Critics, however, contend that the policy would disproportionately benefit wealthier homeowners and reduce Federal tax revenues. Remember, the goal of any tax policy is usually twofold: raise government revenue and influence individuals’ behavior. For example, we previously had tax benefits for investing in clean energy that were eliminated in the BBB since it’s not a priority of the administration. Historically, the reason we had some of these real estate tax incentives — like deductions on mortgages and capital gains exemptions (both up to a certain threshold) — is because we wanted people to build wealth through homeownership. Today, while we still want young people to build wealth, the reality is that homeownership is unaffordable for many first time homebuyers. Perhaps instead of providing tax incentives for those who already own homes, new incentives need to be structured to foster wealth creation for the next generation.

It also seems unlikely that such a move would be politically palatable so soon after passing the Big Beautiful Bill. And to be clear: the exemption only applies to primary residences. It would do little to solve the issue of lower price point homes currently in the hands of investors and corporate owners, which arguably put greater constraints on inventory than primary residences.

But there are also headwinds within the housing market already that call into question the need for legislative solutions to inventory shortfalls. 

Recent data shows that inventory is growing while sales are slowing. Last month, existing home sales dropped 2.7% from May to a nine-month low of 3.93mm (annualized). Homes are sitting on the market longer, averaging 27 days on market in June, up from 22 a year earlier. Meanwhile, inventory rose nearly 16% y-o-y to 1.53mm homes — approximately a 4.7 month supply. Typically a 4-6 month supply indicates a balanced market (<4 months being a seller’s market and >6 months being a buyer’s market). And contract failures are rising, with nearly one in seven pending contracts falling apart in June, the highest rate since records began in 2017.

What’s driving these shifts? Persistently high mortgage rates hovering around 7% and record-high home prices across much of the country certainly don’t help. But broader macro conditions, economic uncertainty, and inflation across other parts of the consumer spending wallet all mean Americans are willing and able to spend less on housing than they were in prior years. The changing climate in the housing market begs the question of whether we’re seeing the early phases of an organic correction that will eventually flow through to home prices down the line. 

Even if Greene’s proposal has legs, these macro factors could blunt its impact. Freed equity may let some “trapped” homeowners trade up or downsize, but the combination of high financing costs, price pressure, and buyer hesitation could offset any resulting boost in inventory.

Put simply: does America even need this kind of policy, or would it just be a “nice to have” for a select set of wealthy homeowners?

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