Trump Is About To Crush Home Prices In Counties That Voted For Hillary: Here's Why

Tyler Durden's picture

As discussed last Friday, several notable surprises in the proposed GOP tax bill involved real estate, and would have an explicit - and adverse - impact on not only proprietors' tax bills, but also on future real estate values if the republican tax bill is passed. And, as the following analysis by Barclays suggests, they may have a secondary purpose: to slam real estate values in counties that by and large voted for Hillary Clinton.

Going back to Friday, the biggest surprise was that mortgage interest would only be deductible on mortgage balances up to $500K for new home purchases, down from the current $1mn threshold. Existing mortgages would be grandfathered, such that borrowers with existing loans would still be allowed to deduct interest on the first $1mn of their mortgage balances. In addition, only the first $10K of local and state property taxes would be allowed to be deducted from income. Finally, married couples seeking a tax exemption on the first $500K of capital gains upon a sale of their primary residence will need to have lived in their home for five of the past eight years, versus two out of the past five years under current rules. This capital gains tax exemption would also be gradually phased out for households that have more than $500K of income a year.

As might be expected, the above provisions caused an uproar in the realtor and homebuilding industries, as Barclays Dennis Lee points out. The National Association of Realtors (NAR) released a statement commenting that “the bill represents a tax increase on middle-class homeowners”, with the NAR President stating that “[t]he nation's 1.3 million Realtors cannot support a bill that takes homeownership off the table for millions of middle-class families”. Meanwhile, the chairman of the National Association of Home Builders (NAHB) stated that “[t]he House Republican tax reform plan abandons middle-class taxpayers in favor of high-income Americans and wealthy corporations”. Given the strong resistance from these two powerful housing groups, there may be changes made to these provisions in the final version of the bill.

What is more interesting, however, is a detailed analysis looking at who would be most affected by Trump's real estate tax changes. Here, an interest pattern emerges, courtesy of Barclays.

According to CoreLogic, the median home price in the US is around $224K while the average property tax paid by homeowners in the country is around $3,300. This suggests that only a minority of homeowners are likely to be affected by the proposed mortgage interest and property tax deduction caps. Indeed, according to preliminary analysis by the NAHB, only about 7mn homes will be affected by the $500K mortgage interest deduction, and since these homeowners will receive the grandfathering benefit, they will not experience any immediate increase in taxes as a result of the mortgage interest deduction cap.

Meanwhile, approximately 3.7mn homeowners pay more than $10K in property taxes according to the NAHB. These homeowners will experience an immediate increase in taxes from the property tax deduction cap; however, to put this number in perspective, the US Census estimates that there are approximately 76mn owner-occupied homes in the country, indicating that fewer than 5% of households may experience a rise in taxes as a result of the property tax cap.

Who is most impacted?

As expected, the homeowners who will be most negatively affected by the proposed caps primarily reside along the coasts, particularly in California. Using estimated median home prices provided by the NAR, Barclays found that of the 20 counties in the country with the highest median home prices, eight were located in California (Figure 3). Perhaps not surprisingly, a majority of voters in all 20 counties voted for Clinton in last year’s presidential election. In fact, Clinton won the vote in the top 45 counties in the country with the highest median home prices. Suddenly the method behind Trump's madness becomes readily apparent...

And while we now know who will be largely impacted, there is a broader implication: not only will these pro-Clinton counties pay more in taxes, it is there that real estate values will tumbles the most. Hers' Barclays:

We can also use the above median home prices to estimate the potential increase in taxes from the deduction caps in the first 12 months for would-be homeowners looking to purchase a home in these counties. Using the simplifying assumption that all borrowers purchase their homes at the median home price in each county and take out an 80% LTV, 30y mortgage at a 4% rate, we can come up with estimates for the monthly P&I payment for each of these areas (Figure 4). We can also estimate the average property tax burden in these counties using average state-level property tax rates.

As Dennis Lee calculates, "assuming that all of these homeowners are taxed at a marginal rate of 39.6%, we find that the increase in tax burden during the first 12 months of homeownership driven solely by the mortgage interest and property tax deduction caps varies from $0 for the county with the 20th highest median home price (San Miguel County, Colorado) to approximately $7,200 for the highest-priced county (San Francisco County, California)." Barclays' conclusion: these counties - all of which are largely pro-Clinton - would need a 0-11% decline in their median home prices to keep the after-tax monthly mortgage and property tax payments the same for would-be buyers.

And that's how Trump is about to punish the "bicoastals" for voting against him: by sending their real estate values tumbling as much as 11%, while serving them with a higher tax bill to boot.

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junction's picture

Trump's tax plan is a by-election disaster waiting to happen.

Oldwood's picture

Well, I'll be fucked given my property tax on my home is $27k.

Thanks Republicans. Fucking us for our own good again.

Bigly's picture

27k? Wtf? It must be yuuuuge!!!

RAT005's picture

Similar, USA has always prohibited export of oil.  Under Obama the law was changed to allow export of Propane.  Propane prices went up quite a bit.  I bet it was well known that most owners of propane tanks (rural folks) vote Republican.

RAT005's picture

The tax issue is on the mortgage value, not the home value.  Many people in that class will just pay down the mortgage to the $500K limit.  Simple ROI type analyses will move less performing money into the home equity.  I predict little additional tax revenue and not much decline in real estate values.

Stuck on Zero's picture

By the time the tax bill gets through Congress the billionaires will get all the benefit and the middle class will be shafted. Bank on it.

Bes's picture

what the fuck is everyone fighting about around here???

this is a way to eventually FUCK us all over

only short-sighted buffoons would fall for this

and over party?!?!

pathetic

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the banksters love this divide and conquer shit

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destroy the MIC and the FED

everything else is moot until that happens

full stop

any_mouse's picture

End the FED, everything else will crash when they run out of FRNs.

Everyone in the System is beholden to and dependent on the System. Corrupted with inoperable tumors spread throughout.

Anyone can find a Federal judge to overturn an Executive Order that is within the Constitutional duties of the Federal Government.

Try to find a Federal judge that will demand an audit of the FED and the ownership of the FED.

DownWithYogaPants's picture

but Hillary voters will consider it their civic duty to pay more taxes so nothing to see here!

Manthong's picture

 

..goddamit…

 

I am still stuck in O’bama and Rahm’s Crook county, and we don’t even get an honorable mention?????

I am calling for ordnance on my position in a selfless act of sacrifice.

Take me out as long as you take them out. too.

Moe Howard's picture

I bailed on that place way back in the early 1980's, the writing was on the wall then. Or should I say the water got too hot and I jumped out of the pot, but missed the fire?

USisCorrupt's picture

Since I no longer have a mortgage and I am 99% out of the dollar system I DON'T CARE.

BTW....I do LOVE my Cryptos. My CD's & Treasuries are now BitCoin's in Paper Wallets and my old Casascius Bitcoins, along with ETH, LTC, ETC, VTC, CLOAK, XMR.

I support President TRUMP 100% !

RAT005's picture

I left 2001. Even then it had relatively low property taxes. The looming bankruptcy was obvious.

s2man's picture

Same here.  Its a good place to be FROM. 

 

I am rural, now.  No city gov.  No zoning.  No city taxes. County property tax $1300 b ecause I am withing commuting distance of the outlying suburbs.  If I had gone one more county away from the big city taxes would be more like $130 and there are no building permits.

Hari_Seldon's picture

I truly feel sorry for you.  So close/inside of Chitcago.

snr-moment's picture

this exactly. always willing to increase taxes on others. turnaround is fair play.  Tax the rich!

divingengineer's picture

Look where we’re at.
You’d have to be a fool, or just plain obtuse to not see the writing on the wall.
Taxes must rise substantially to keep this game going for a few more years.

Things that go bump's picture

There is a limit on how much they can actually tax.  Above that and they reach real resistance and serious tax avoidance behavior from a major percentage of the population. Counterintuitively, the amount of tax actually collected goes down. This is a well known phenomenon. I don't know how close they are to this limit. I suspect the drive to go paperless has more than a little to do with this phenomenon. 

Pokeys Pissed's picture

I'm sure their highest priority is to pay their "Fair Share"

Oldwood's picture

$10000 cap on property tax deduction.

RSDallas's picture

RAT005,

 

OK so let's say that homeowner pays their balance down to $500k.  Their income is probably between $500k plus, so now they will be taxed dearly on the Capital Gains if they need to sell because their Capital Gains paid on the sale of a personal residence is being completely phased out.  Listen, the powers (dumbasses) in Washington have a hard-on as it relates to poisoning the Real Estate market to the point where individuals quit using this asset as a means of wealth accumulation.  

divingengineer's picture

As the head of a household currently in need of a reasonably priced accommodation, I must confess that I agree with the “powers” on this one.

RAT005's picture

Capital gains has nothing to do with equity. Just as the mortgage amount isn't tightly connected to home value. If someone has less than 20% equity they are an idiot to buy more than they can afford and pay PMI. $500k is 80% of $625K. So we're talking about $625K homes at a minimum.  Most people are on their 3rd home before getting to that price.  By the 3rd home they have at least $125k equity.

I suspect you haven't purchased too many homes. I think this is mostly a big nothing burger. Besides never passing as written.  Probably a Trump bargaining chip.

hllnwlz's picture

I live on one of these counties.  You think these people have $100k lying around?  Think again.  They've got car payments,  cc payments,  tuition payments,  rv payments, vacation rental payments, etc. They're leveraged up the wazoo, and they need the big house and it's equity to maintain the illusion, which Trump may destroy in short order with a change that would likely result in a significant correction. They're broke af, they just play pretend to be wealthy. Image is everything and the house is a big part of that.  

divingengineer's picture

I'm in the Bay Area and agree. The Lexus in the driveway of the 5 bedroom house of the empty nester is what makes the whole illusion work. 

Shitting your pants trying to convince other people, that you don't even know, believe that you have more money than you actually do is everything here. 

I refuse to play, so I guess I just don't fit in. A million dollars for a 3 bedroom, 2 bath house in Fremont/San Ramon/Pleasanton/Dublin now. A house is basically a million, take it or leave it cause there are a dozen gooks behind you in line that are clamoring to pay cash if you don't want it. 

11% is not nearly enough, I'd like to see  prices do another real pullback like in 2008.

Antifaschistische's picture

yes, what a stupid title for this article.

....and Mr. Trump, help us out....stop calling this a "home ownership, or home deduction" etc.   This is a DEBT deduction.  If someone is "rich", they don't need to borrow a million dollars to buy a damn house.   The only incentive we have today is to BORROW money....which is stupID!!  

Stop incentivizing borrowing money and incentivize actual ownership NOT DEBT.  This "tax deduction" is NOTHING but a SUBSIDY for the banking industry.  It has NOTHING to do with incentivizing "ownership."

 

toady's picture

NAR thinks "middle class" families own $500k houses....

You're top 10% to be able to afford a $500k house.... or a fool if you let MAR convince you that you can afford it!

Oldwood's picture

What do you think middle class is. 50 percentile income?

gatorengineer's picture

The ""middle class"" do own 500k homes.  I know several folks with a combined 125k coming in 500k homes on liars loans because housing can only go up.....  a 125k in Eastern PA/NJ is lower middle class.  in cali there are a ton of ""poor"" in 500k homes.

This says 50% percentile income is $43,54.  If that is applied to a family of 4 you are on Section 8, free school lunches, SNAP, and EBT.  Plus you get an Earned income tax credit and of course Medicaid.  E.G. you are a member of the FSA

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&...

The middle class has traditionally been defined as owning a home, two cars, sending the kids to school, annual vacation and retirement savings.  that is 150k plus in the Northeast, and maybe as low as 120k in flyover country

RSDallas's picture

The Govt. has defined the middle class as $90,000.00 (filing joint) and below.  They are screwing everyone else!

toady's picture

50 percentile is 33k.... low is 12....

I suppose if we're talking "middle class" I'd go as high as 80k....

Endgame Napoleon's picture

Top 10%:

If you’re in true-blue CA, that’ll just buy half of a teeny, tiny, ranch-style house on a half-an-acre lot.............

Moe Howard's picture

So where are these huge numbers of illegal aliens living in California? Or can they buy $500k houses picking lettuce?

Agstacker's picture

That's what I was thinking, most middle class families I know have homes ~350K and under.

Ajax-1's picture

You are quite correct. Now that the shoe is on the other foot, I can only hope that Trump fucks these pinko-commie cock suckers.

mkkby's picture

No interest OF ANY KIND should be deductible. All this does is jack up living expenses for regular folks.

Stop encouraging debt, stop sucking up to banks, stop blowing the real estate brokers.

Eliminate farm and ethanol subsidies while we're at it.

A. Boaty's picture

Blunt weapon. What about his supporters who live in those areas?

BearClaw's picture

Most  Trump supporters in those areas are long term (older) residents who purchased their homes decades ago. I don't think they'll mind too much. 

beemasters's picture

Why is there no news on the Paradise Papers on ZH yet? Late in the game again?

https://www.theguardian.com/news/2017/nov/05/paradise-papers-leak-reveal...

CuttingEdge's picture

A manufactured "Over there - a rabbit!" leak if ever there was one.

The matrix is definitely shaking a tad.

toady's picture

It's gotta be jersey... never seen anything that ridiculous anywhere else.

Although I suppose other coastal shitholes may be trying to catch up to jersey....

yogibear's picture

They're  trapped. Who's going to want to buy these income suckers? 

Offthebeach's picture

High taxes are investments!

Mustafa Kemal's picture

"27k? Wtf? It must be yuuuuge!!!"

Oldwood, you blueblood?

Oldwood's picture

Nope, just sawdust. Just because I'm getting taxed to death surely doesn't make aristocracy does it? If so, I'll stop bitching.

divingengineer's picture

Yeah, if you were THAT loaded you wouldn't be paying shit.  Just a tax donkey. 

Arnold's picture

Own a small business sometime.