Tax Reform – Unintended Consequences?
Reader Tim sent this in:
Jim/All – do you have any thoughts on unintended consequences of the tax bills (as constituted)? You think there could be an impact from eliminating interest deduction on equity withdrawals with regard to the cash buyer market? Also wondering if increasing the time homeowners need to be in their home ultimately reduces velocity, which gums up the market further.
My initial thoughts:
- If the Senate plan gets approved, then we should see some real scrambling for Hawaiian shirts as realtors get back in the game this week. The senators’ plan allows for those who have lived in their house for less than five years to close escrow in 2018, as long as their contract to sell is signed this month. But are people paying close attention? If so, we should see a Santa frenzy over the next three weeks.
- If those who were planning to sell in 2018 or 2019 end up delaying their sale to qualify for the five-out-of-eight rule, we might see fewer homes for sale – especially in 2018 (the impact will lessen in each of the next three years as people catch up). But other sellers could pick up the slack, or buyers just take what they can get. In San Diego County we have had 7% fewer listings in 2017, but about the same number of sales as last year – the lower inventory didn’t cause sales to drop.
- Home equity lines no longer deductible? No impact on buying or selling – the money extracted by your HELOC must be used for home improvements to be deductible. I’m sure everyone abides by the rule (?).
- I think the misinformation is a real threat – what are the real facts? When realtor presidents can’t get their head straight about the tax-reform details, and instead spew vague threats about values dropping 10% to 15%, it might cause buyers to pause. We’ll probably know in February or March – if sales start popping, buyers will forget and, instead, get back into the fight.
- An intended consequence is that the stock market will go ballistic, and if that happens, real estate will be fine.
What do you think?