December 21, 2017

The Spiraling Price Of Buying Turns Expectations Upside Down

A report from Mansion Global. “The real estate market will be among the sectors most impacted by the $1.5 trillion tax bill passed in the U.S. Wednesday. Many real estate experts have been up in arms about the changes, with the National Association of Realtors (NAR) initially warning that it could lower home prices by up to 10% in every state. An oversupply in luxury housing, plus a limited pool of buyers, has already slowed sales in that sector. And tax woes have only increased hesitation from buyers.”

“‘People are going to be trying to figure out what it means for them,’ said Donna Olshan, president of New York City-based Olshan Realty. ‘It’s certainly not a positive for New York. Almost all my clients pay six figures in New York state and New York City taxes,’ said Ms. Olshan, who has clients in both Manhattan and suburban Westchester, New York. ‘What does that mean for them?’”

The Los Angeles Times in California. “The Republican tax bill reduces the ability of home buyers to deduct mortgage interest, which will be a hit to home shoppers in Southern California and the Bay Area, where housing costs are sky-high. 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. 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.”

From San Francisco Curbed in California. “It is one more case where the spiraling price of buying in the Bay Area turns values and expectations upside down. Docking the mortgage cap is supposed to be a hit at luxury real estate. However, as Jordan Weissman wrote for Slate, buyers ’stuck house-hunting in San Francisco or New York’ end up swept up by default. Because any new rule aimed at high-end luxury homes is going to hit most of San Francisco—even the teardowns.”

The Houston Chronicle in Texas. “Patrick O’Connor, a Houston-based property tax consultant, said prices in the luxury market could slide by 5 to 10 percent as a result of the smaller mortgage interest deduction. A homeowner with a home assessed at $1 million is expected to pay $3,700 more in federal taxes next year, he said. ‘It makes a difference,’ O’Connor said.”

“The bigger impact in Houston would be the $10,000 cap on property tax deductions, said Jim Gaines, an economist with the Texas A&M real estate center. Texas, which has no state income tax, has some of the highest property taxes in the nation. As many as a quarter of houses in Houston could have property taxes above the $10,000 threshold, Gaines said. ‘Quite frankly, that will be the biggest impact that affects Texas,’ he said.”

The Asbury Park Press in New Jersey. “Congress neared approval of a sweeping tax bill on Wednesday that analysts said could give the economy a short-term jolt, but in New Jersey and other high-tax states could slow down the housing industry. It sparked fears that the bill could cause home values in some markets to take a 10 percent hit, according to a report by Moody’s Analytics. For some consumers trying to decide whether it makes sense to buy a home, or even move, ‘this kind of rejiggers that whole equation,’ said Robert Oppenheimer, the past-president of the New Jersey Association of Realtors.”

“What becomes of New Jersey’s housing market would be a wild card. One grim scenario: It would accelerate the migration of high-income New Jerseyans to other states, which have lower taxes and aren’t fretting over the change. The impact wouldn’t stop there. The slowdown in home sales would ripple through the economy, hurting contractors and home furnishing stores that get a jolt every time a home is sold.”

“‘Maybe New Jersey ought to take a fresh look at our overall tax structure and find ways to reduce the local property tax reliance and shift to broader-based (system) like sales taxes or corporate taxes so you get more people able to take advantage of that $10,000 cap,’ said Peter Reinhart, director of the Kislak Real Estate Institute at Monmouth University in West Long Branch. ‘The deep concern is that New Jersey, already a high-taxed state, will have even higher taxes and will that accelerate people leaving the state?’”

From North Jersey. “The alarm bells are sounding in New Jersey. They have been set off by the new tax reform law Congress approved this week. But it can be a good thing. The new tax bill will have almost zero impact on ‘the working poor.’ Only 40 percent of taxpayers in the state claim the state and local deduction so they are unaffected by the law. The real impact will hurt the suburban middle class – which have been the target of local, county and state politicians for decades.”

“We did this to ourselves – so if state politicians want to be mad at anyone, they should be angry at themselves. Year after year, New Jersey’s property tax burden on homeowners has risen and has been crushing middle-class families and harming business owners for years. Nevertheless, Trenton legislators, school boards and mayors have ignored the taxpayers’ cries for help. Perhaps now – thanks to federal tax reform – we have the impetus we need for a tax revolt in New Jersey unlike anything this state has seen since Jim Florio was dumped out of statehouse.”