December 10, 2017

The Biggest Effects In The More Expensive Markets

A weekend topic starting with the Dallas Observer in Texas. “To our regret or good fortune time only will tell, but Dallas is a great laboratory for viewing the forces roiling around American cities. We’ve got thunder overhead, rumblings in the basement and maybe a great day ahead. Nationally, the divide between cities and everybody else has been consuming ink in recent weeks. From the point of view of the people in Texas who despise cities, the problem with cities is that they all voted for Hillary Clinton. Cities are viewed as bastions of anti-Trumpian disloyalty while voters in the rest of Texas would be honored to deliver their first-born daughters to be officially groped. Second-born, in fact, if the first one’s already too long in the tooth.”

“Something else is growling round down there while we sit up here in the kitchen staring at each other. It’s related to another level and type of urban issue being bandied about nationally. That question is whether liberal ideas and policies on certain issues — zoning, density, the environment, labor law, including the minimum wage — operate against the poor. Conservatives seem to think they’ve stumbled on a devilishly clever new trope: insisting that restrictive city ordinances, especially in the area of real estate, are responsible for the high cost of housing and therefore to blame for most of the associated ills of poverty.”

“As someone who has covered real estate and land-use battles at the level of City Hall for about 100 years, I am here to tell you this idea is ancient and hoary, not new at all. The argument is that all restrictions are snobbish and the only justice for the poor is a free-for-all with no zoning or protection for established neighborhoods. Thank goodness people in cities are smarter than that. Most of us know there are two kinds of people who do not make cities work, who do not make sure the buses run on time or see to it that the garbage gets picked up the way it should: (1) really rich people and (2) really poor people. The people who make a city work the right way are the middle class.”

“We are invested in the dirt. We’re not going anywhere soon. The institutional arms of government need to work right for us, and they need to work right here, right now. Yes, we have standards. Those standards have to do with safety, efficiency and pleasantness. If those are snobbish standards, then OK. Call us the snobs.”

The Mercury News in California. “Emma Carroll, a UC Berkeley grad student, is thinking about taking out loans just to pay what could be a substantially higher tax bill. Jerry Pohorsky, an engineer in Santa Clara, might put off his plans to buy a new electric vehicle if a federal tax credit gets cut. And John Hansen, an attorney in Castro Valley, is considering moving to Georgia in part to avoid paying some California income and property tax he could no longer deduct from his federal bill.”

“As Republicans square the last details of President Donald Trump’s massive tax overhaul before a final vote in Congress, many Bay Area residents are running the numbers and worrying that they’ll end up paying more. California’s high taxes and the Bay Area’s high home prices will likely make our region one of the most adversely affected places in the country, and accountants and tax experts say there’s not much taxpayers can do to avoid it.”

“‘This doesn’t affect 95 percent of homeowners in the country, but it affects basically everybody here,’ said Joseph Salazar, a tax specialist and financial adviser in San Jose. ‘If you have a young couple looking to buy their first house, why would they want to move here?’”

“‘Looking at our situation, I think it’s going to be a better deal,’ said Bob Jackson, 65, a San Jose Democrat and retired mail carrier. He and his wife take the standard deduction and have no mortgage on their mobile home, which they rent a space for instead of paying property tax. ‘It’s good for people like us.’”

“There are many in the Bay Area like Jan Soule, a San Jose Republican retiree from the tech industry, who says the tax plan ‘makes sense.’ The house she and her husband have owned for decades is paid off, and they have relatively low property taxes thanks to California’s Proposition 13 — so they won’t miss many of the deductions. She doesn’t believe her party is using it to punish blue states. And if some Californians are angry about having to pay a higher tax bill, Soule said, ‘maybe they’ll wake up to the fact that our state taxes are out of control.’”

The Los Angeles Times in California. “If you were to stand near the corner of 57th Street and South Vermont Avenue, you might not see many great selling points. But if you were to stand there with Julio Ruiz, you’d get a different take. He’d point out the nearby transit options, which could get you to USC, downtown, and all the way to the beach. He’d tell you about all the people moving into the area and all the investors who want a piece of the action.”

“And he’d tell you this: ‘There is cheap housing in L.A. … The American dream is still affordable in Watts, Compton and all the forgotten ghettos. There’s a buzz all over here,’ he said. Houses are getting multiple offers, sometimes all cash, and some are selling above asking prices.”

“Ruiz represents a Koreatown couple interested in a $500,000 home in South L.A. because the price would be double that amount where they now live. And he handled one sale in which a white gay couple bought a rehabbed Craftsman near Slauson and Western avenues for just under $500,000. ‘One of our neighbors … said she was so happy the gays were moving in because property values would be going up,’ said Steven (last name withheld by request), who lives in the house with his partner.”

“As much as I admired Ruiz’s hustle and pluck, I had to point out that he’s riding a wave that will lift some people and drown others, particularly low-income minorities. He argued that he used to work for banks and had to clear squatters, gangs and drug dealers out of houses all over the South Side. Neighbors appreciated the improvements, he said.”

“‘There was an opportunity for people to fix up these houses and for first-time buyers to get in through FHA, VA or different types of loans. As these houses started getting rehabbed, I felt like South L.A. was getting cleaned up,’ Ruiz said.”

The Denver Post in Colorado. “Years of rapid home price appreciation along the northern Front Range will leave homeowners in the region more vulnerable to changes in the tax code now before Congress. Coloradans need to be aware of one change in particular that could have big implications for them when it comes time to sell — an extension in the time owners must occupy their homes to avoid paying capital-gains taxes.”

“‘Homeowners across the country should pay attention. You will find the biggest effects, however, in your biggest, more expensive markets,’ said Danielle Hale, chief economist with”

“Right now, owners must have lived in a home for at least two years within the last five years at the time of sale to avoid paying capital gains taxes on any increase in value up to $500,000 for joint filers, and $250,000 for single filers. For most homeowners, that means holding on to a home for at least two years is a good idea.”

“But Congress, looking for ways to generate more revenues to pay for cuts elsewhere, wants to extend that to five years within the last eight years. That would force most homeowners to wait five years or more to avoid a tax penalty that could reach into the tens of thousands of dollars.”

“According to, Denver is the country’s ‘most recovered’ large metro housing market, with a federal home price index 72.3 percent above the peak reached last decade before the housing crash. The median home price in Boulder was about $516,000, and $392,000 in metro Denver, as of August, according to the Black Knight home price index. Sellers in metro Denver had an average profit above their initial purchase price and other costs of $110,000, while those in Boulder pulled down profits of $150,000. Nationwide, the average gain on sale is around $80,000.”

“The National Association of Realtors (NAR) argues the loss of real-estate-related deductions could cost homeowners $1,000 more on average in taxes while providing renters a savings of $500. ‘The NAR is predicting home prices could fall from 7 percent to 11 percent (in Colorado) if both the mortgage interest and real estate taxes deductions are eliminated,’ said Steve Thayer, chairman of DMAR and owner of Keller Williams Action Realty in Castle Rock.”

“That would translate into the typical homeowner in Colorado losing home equity in the $24,000 to $36,000 range, Thayer said. The mortgage interest deduction on second homes, which account for about 5 percent of the state’s housing stock, is also on the chopping block. In some mountain resort counties, the share of vacation homes can run 30 percent to 40 percent higher.”

“Glen Weinberg, chief operating officer at Fairview Commercial Lending in Steamboat Springs, said on his daily lunchtime jog, he has noticed more vacation homes coming up for sale. People could be disappointed with the paltry snow or just making year-end financial moves. But the surge coincides with the Congressional wrangling over tax reforms. His take is that some owners are trying to get ahead of what they perceive as a downturn in the second home market, he said.”

“‘What does this mean for the second-home market? It will be fascinating to see what happens,’ he said.”