It won’t be long before we shrug off what the politicians are doing to us, but first, let’s see what people are saying. The net effect is what future home buyers think about losing the roughly $3,000 in MID tax savings (from the $750,000 cap, instead of $1M) and having to eat the taxation of state, local, and property taxes above $10,000. There could be future sellers who decide not to move also, which would help to offset any decline in demand.
Quotes from the latimes.com:
Christopher Thornberg, founding partner with Beacon Economics, predicted prices will keep on climbing in Southern California, given the robust economy and shortage of listings. “If you are borrowing a million bucks to get a home, the write-off is not your primary concern,” he said.
Fadel Lawandy, a director at Chapman University’s Hoag Center for Real Estate and Finance, pointed out that the bill also caps property and state income tax deductions at a combined $10,000 — about $8,500 less than the average deduction taken by Californians in 2015, according to the Tax Policy Center.
Combined with the new cap on mortgage interest deductions, that could mean some households will have less to spend on housing, leading to price declines in some wealthy areas, Lawandy said.
“It will impact the high luxury-end market for sure,” he said.
Chris Lafakis, a director with Moody’s Analytics, said that by adding an estimated $1.5 trillion to the federal budget deficit over 10 years, the tax bill will put upward pressure on interest rates — including mortgage rates, which have remained under 5% for the last six years.
The tax bill doubles the standard deduction, which means fewer households will itemize. That may result in people buying a less expensive house because they couldn’t write off any interest, Lafakis figures.
A Moody’s analysis of a bill that previously passed the Senate — which eliminated the state income tax deduction but kept the $1-million mortgage deduction — estimated that home prices in L.A. County wouldn’t necessarily drop, but would wind up 3.8% lower than they otherwise would be by the third quarter of 2019.
“It is something that will hinder house price growth, but I wouldn’t say it’s going to do much more than that,” Lafakis said. “At the end of the day, we do have a strong economy in California.”
Among those watching the tax debate is Barry Sulpor, a real estate agent who specializes in the South Bay and has his office in Manhattan Beach, where the median home price was $2.26 million in October, according to Zillow.
Sulpor estimated that at least half of his clients take out mortgages over $750,000. He said some sellers are more willing to sell now, because they are uncertain how much longer prices can keep rising and how the tax bill will affect the economy.
Some economists, for example, expect the bill could have a slight drag on growth in high-tax California, even if they expect the economy to keep growing.
Sulpor said he doubts limiting the mortgage interest deduction would put the kibosh on people’s home search, but thinks some people may hesitate to sign a deal. “I think psychologically it could be a big deal, even though it may not practically matter that much,” he said.
Jeff Lazerson, president of Laguna Niguel mortgage brokerage Mortgage Grader, said he hasn’t heard much concern. “People who are bent on buying are bent on buying,” he said.
That includes Jake Schmidt, a client who is looking for a home in Orange County and expects to take out a mortgage for $1 million to $1.2 million.
The owner of an online retail business, Schmidt said he doesn’t know if he’ll pay more or less in taxes on next year’s income. But the uncertainty isn’t deterring his search for a five-bedroom house on a nice street for his children.
“It is not super critical, the pricing or the tax deduction,” said Schmidt, 39. “I am more interested in finding a good house for my family.”
The tax bill also explodes the deficit by $1.5 trillion, resulting in higher mortgage rates, and ultimately weakening housing demand, said Mark Zandi, the chief economist at Moody’s Analytics.
“Considering all of this, the hit to national house prices is estimated to be near 4% at the peak of their impact in summer 2019,” Zandi said. “That is, national house prices will be approximately 4% lower than they would have been if there were no tax legislation.”
Comment Adding my opinion is:
1-less people who own homes with a 750K-1mill mortgage will move up, and less will sell to keep the deduction if they wish to downsize: Under 930K price or less totally uneffected by the new law with 20% down, otherwise its 825K with 10% down. The two million and up are not gonna cry about another 250k less deduction, possibly the cap limit on property taxs but those folks are gonna get more money to spend thanks to the tax breaks in Corp etc, meaning they will have more money to buy…look for upswing in that market.
Look for more corporate ownership or LLC etc for the higher end property, its common on very upper end houses. The smart people know how to adjust and make the tax law work for them.
I agree, and have said so on this forum…inflation is coming, BIG time and this bill is gonna add flame to the fire, it would of come anyway, so again..LOCK IN YOUR RATE NOW for 15/30 years, its cheap money and will more than make up any adjustment in the further on prices if you are sitting on the fence, or waiting for a big price adjustment which is less likely to happen in SD, than Detroit. The key has always been the “payment” not just the current market price.
We are a sanctuary state…more people are gonna here, demand for housing is gonna grow, supply and demand is a factor that is here to stay.
Agree with Mr. Jones!
Also, there is a LOT of money parked in the stock market. Two historic area’s of entry were just after Obama took office, then right after Trump took office. That money’s just sitting there, waiting to buy a house. Even if the market has some scary days, it’s high enough for those folks to still exit with fat pockets. All the drama about Trump’s latest plan de jour turned out as easily predicted. Not much drama at all, with his traditional hysterical opponents standing on the side of the train tracks with a comical look on their face. That’s gotta be working on them. Repetitive success has a way of killing an opponent’s morale.
Back to my refrain: there’s a party going on, and many aren’t invited, but enough people–globally–are, to carry the Southern California housing market. Yeah, people are moving to Las Vegas, but people are arriving from Bejing, and other fat wallet countries, and they’ve heard Irvine is a magical place. Bel Air living gets you instant respect from those Americans! They point and wave at you!
Also, another issue I’ve mention at least a couple of years ago is the ethnic cleansing of Compton. Conservatives don’t mention it because they don’t care, and Libs don’t mention it because it’s too confusing for them. Regardless, it’s pretty much cleansed, making it a VERY hot real estate market at the moment. Many economically up-and-coming Latino’s are moving there because the crime is way down, thanks to them, and the price is right. One interviewee said the money saved allows allowing him to send his kids to private schools. It ain’t your grandma’s Compton.
Conclusion: California real estate is back to the lead, follow, or get out of the way mode. Imo, it can dispense with common sense and run on momentum for the next 5 years easily: