The Republican Tax Plan Will Crush These Housing Markets

Tyler Durden's picture

For the past few weeks, Chuck Schumer and Nancy Pelosi have screamed to anyone who would listen that the GOP tax plan is nothing more than a tax break for millionaires and an attack on middle class working families.  But, as the Wall Street Journal points out this morning, America's millionaire, billionaire, private jet owners living in expensive urban areas are set to lose 'bigly' if Trump's $500,000 cap on the mortgage interest deduction survives.

But in the priciest markets, concentrated in some of the nation’s largest coastal cities, the impact could be significant. In the San Jose, Calif., metropolitan area, 75% of new mortgage loans thus far in 2017 were for more than $500,000, according to an analysis by CoreLogic Inc., a housing data provider. The median home price there is more than $1 million, and even small starter homes can climb well above the proposed cap.

 

In the San Francisco metro area, 60% of new loans were for more than $500,000, while in Los Angeles and San Diego, the figures were 44% and 37%, respectively.

 

The impact wouldn’t be limited to California. In Honolulu, 48% of loans were greater than $500,000, while the figures for the New York area and Seattle were 22% and 25%, respectively.

 

An analysis by ATTOM Data Solutions yielded similar results. In the Washington, D.C., area, 35% of purchase and refinance loans in 2017 thus far were for more than $500,000. In Hawaii, 15% of loans fell into that category, while in California 12% did.

In addition to capping the mortgage interest deduction, the current GOP bill also limits the amount of property taxes that households can deduct to $10,000 annually.

Not surprisingly, the assault on McMansions has angered the realtor lobby which we're certain will fight tooth and nail to preserve the status quo.

Jeff Barnett, a California realtor and vice chairman of the National Association of Realtors’ large-firm real-estate services committee, said his area will be hit “very, very hard” if the tax bill passes. Even if corporate tax cuts help boost the economy, he doesn’t think that will be enough to compensate.

 

“You’ve taken away so many incentives for housing, they can’t spend” the money from any extra economic growth, he said.

Of course, as we pointed out earlier this week (see: Trump Is About To Crush Home Prices In Counties That Voted For Hillary: Here's Why), Clinton won the vote in the top 45 counties in the country with the highest median home prices which has resulted in rampant speculation that the mortgage cap is nothing more than a clever punishment levied on Democratic voters.

As Dennis Lee calculated, "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.

Of course, only time will tell whether the swamp (a.k.a. "The National Association of Realtors" in this case) will allow this particular component of the GOP tax bill to survive...

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enforcer92677's picture

Fuck yeah!  I knew I sold my house in Laguna just in time!  Time to get rig rig riggity wrecked bitches!

Stuck on Zero's picture

The rich don't take out mortgages. They buy houses through their Panamanian holding companies.

wee-weed up's picture

Almost all big Lib high-tax areas.

nmewn's picture

Gosh, maybe they should talk to their local & state pols about bringing those high tax rates down in order to compensate for them not being able TO WRITE THEM OFF.

Man, that must suck...LMMFAO! ;-)

 

Tippoo Sultan's picture

Cry me an East River.

What is Pelosi's net worth - $ 35 million ? Hypocrite.

Life of Illusion's picture

 

 

How about FED stops buying MBS

crush some more

 

stop this https://www.newyorkfed.org/markets/ambs/index.html and see what happens

Fake market made by the FED

4shzl's picture

No one who actually works for a living doing something useful can afford to live in these areas -- so by all means, let's pop the bubble.

Pool Shark's picture

Even though Mrs. Shark and I will be paying even more taxes under the plan (as a pair of professional working 'Tax Donkeys' in Kalifornia), It will be fun to watch the Libs (who always support tax increases when Dems are in charge) go apoplectic until their heads explode...

https://www.youtube.com/watch?v=gG7LoTezLO8

Mazzy's picture

That's the whole idea, actually.

Bigly's picture

For once, my specific area does not show as fubar on one of these charts!

Yay!

Anteater's picture

So you know about that scam too?! 

Panama, where dreams are made!!

whackedinflorida's picture

All housing markets are inter-related.  If housing values fall in California and New York, it has to impact housing values in places where the sellers of houses in those markets move to - Nevada, Colorado, Florida, Arizona, for example.  I agree its great to give some payback to those libs in the high priced areas who are always voting for people who want to raise taxes.  I dont think another housing crash is worth it.

Reducing the tax preference for owner occupied real estate is nothing more than a gift to the owners of rental real estate - who still get to deduct the full amount of mortgage interest in their rental properties.  We should not be surprised that this president woudl be in favor of such things.  I would like to know how much rental real estate our president owns - how much does he benefit from this change?  

Gap Admirer's picture

"All housing markets are inter-related. "

No, they're not.  They are based on supply and demand within the local market.  If one market has many jobs paying $200K/year, housing prices there will be much higher than in an area where jobs pay $30K/year.  If those $200K/year jobs go away it won't impact the housing costs on the other side of the country.

The vast majority of people will buy what they feel is best for them, and their families, for what they can afford.

Owning rental real estate is a business.  Interest on any capital item in the business is a business expense that can be written off.  Amortized over X years if the amount is over Y.

nmewn's picture

The Triggering...bitchez ;-)

The Toothman's picture

You get an upvote for the Rick and Morty reference

Gorgeous's picture

If you have to ask how much are the property taxes in San Francisco, you can't afford the house.  It's like asking the gas mileage on a lamborghini.

Kirk2NCC1701's picture

Gas mileage on a Lamborghini?  LOL.

Try a 50' power boat, where it's GPM, not MPG.

Deplorable's picture

<----Do I look like i give a shit?

Bigly's picture

Yes. You look like you are trying too hard to look like you don't care.

Dun_Dulind's picture

Liberals.... Liberals everywhere!

Anteater's picture

Now I see why they call it Jackson Hole.

Endgame Napoleon's picture

One question from someone who opposes the tax cut on other grounds: Is it a good thing that homes in SV, etc. are so high in price that a basic ranch home is out of reach for most of the potential home buyers who need the space in a house, rather than a small condo or an apartment? Is this a realistic housing market or some kind of jacked-up, sci-fi housing market?

Oldwood's picture

Why would you want to buy a home when you can get such good rates on a new Jag sedan? Nobody can see who lives in that big house, but now a nice ride (if the windows aren't tinted too dark), now that EVERYONE can see you tooling around.

In all seriousness, there is a lot to hate about this bill but I would take it if they would just end busness taxes, as I think that is the single biggest contributor to our economic issues (government aside).

Mazzy's picture

Just eliminate any tax that an employer has to pay as a cost of employing someone.  Problem with "unemployment" solved (aside from the millions of losers in this country who don't want to do anything with themselves).

Oldwood's picture

Government uses taxation as a weapon to harm some? and give advantage to others. It takes no genius to understand that when you rax domestic business at very high rates and imports not at all, it's going to have bad effects. Like no one could see it coming.

We can rightly bitch about military and healthcare spending, but at least it is predominantly DOMESTIC spending, but government and individuals borrowing trillions to buy imports does little to provide jobs and decent incomes.

idontcare's picture

Now raise interest rates.  

Archibald Buttle's picture

i would happily see the interest rate on my savings account look more like the one that, as a kid, i deposited my lawn mowing and driveway shoveling proceeds into.

Herdee's picture

You're going to find that as time goes on and deficits rise at a trillion or more a year that these government bastards will be nickel and diming everyone. None of the crooks want to reduce the size of government. If you got rid of the entire lazy ass federal government they'd still run a deficit of at least 700 Billion at current expenditures.

Wilcox1's picture

President Trump difinitely has his finger on the pulse with this one. The strata that mindlessly takes advantage of US(A) through the excessive morgage interest deduction and excessive property tax deduction is the strata that is holding AMERICANS down. The policy that allows these excessive deductions is not conservative, Therefore CONSERVATIVES cannot support it. 

lucyvp's picture

Not exactly.

In Northern Illionois, meadian home price is around 300K,  and property taxes are about 3% of home value. Mighty close to the 10K cutoff, and that is a Median house.

I would move except for job and family.

 

Bill of Rights's picture

Good hope it passes...

cynicalskeptic's picture

One more way to screw what's left of the middle class.  These places are those still paying well - thugh the housing prices are outpacing wages. They're going to drive up interst rates, increase local taxes and eliminate deductions.

The truly wealthy don't need mortgages and the high end markets are being propped up by money laundering both domestic and foreign.  Lots of empty multi million dollar places in NYC and elsewhere.

In greater NYC a half million is buy in for a starter house anywhere you might want to live.

 

They've already made it nearly impossible to save anything or get a return on your money now they're going to steal any equity you have in your house.

 

Faeriedust's picture

Median wage is in the $37-$38K range, making the mortgage affordable for a two-income median-wage family around $225K (assuming a 20% downpayment from savings). Keep in mind that the DEFINITION of "median" requires that fully 50% of the population makes less than the median income.  The limit for mortgage deductibility is thus twice what a median couple could afford, or roughly the price range for the top 25% of the population at best.  So your locations where the median home price is over $500K are ipso facto locations where the "average" couple can't afford a house at current prices.  The loss of the deduction should exert a downward pressure on housing prices and speculation, as should the revised rules for capital gains treatment, which discourage "flipping" by requiring longer residence times.

But if you're fool enough to live in NYC, don't come complaining to the government about not being able to afford it.  There are alternatives.

twh99's picture

And anyone who could afford that big of a mortgage was probably limited out somewhat due to AMT.  Since AMT is being repealed (in the house version) in the tax bill, it will probably be a wash.

SurlysonofaBitch's picture

ATM doesn't limit the mortgage write off, but the property tax would be AMT'd out in those homes.

I Write Code's picture

Yes, count *new* mortgages, not all mortgages, to estimate the impact.  Though actually we're ten years past the previous peak and at this point there's not a huge difference between all and recent.  We're still well below the previous peak in real dollars, a lot of inflation over the last ten years, whether the labor department says so or not.

vienna_proxy's picture

I'm putting this in the win column

vienna_proxy's picture

it's in the win column, i'm not taking it out

New_Meat's picture

use a pencil, or "chaulk it up"

'cuz when the "conference" concludes, it will be the worst of the House and Senate starters.

GAR-UN-TEED!

MuffDiver69's picture

Existing homes are grandfathered. This would do two things. Make 499;000 dollar homes a good idea instead of bullshit one million and conversely devalue existing homes to more affordable prices. Sure.. some people will lose out, but maybe the homeless could rent a room or two,.Step up Liberals..

moorewasthebestbond's picture

I thought we determined yesterday this was bullshit, and only 7% of all homes were even potentially subject to this new tax rule.

Mazzy's picture

What the hell's going on in northwestern Louisiana?

The Real Tony's picture

Wouldn't it just be a lot easier to triple the taxes on anyone with a Chinese name rather than going after the Chinese on the west coast?

Jackagain's picture

Many would be changing their names to Wongski & Chungstein...

freedom1798's picture

Maybe anyone with slant eyes would be better.

any_mouse's picture

The Housing market is in a bubble, because of government and FED interference.

Rather then "crush", how about "allow a return to realistic price levels".

Everyone wants their entitlement to be preserved. Damn everyone else.

Buy high, expecting it to only go higher.

JasperEllings's picture

Just to be clear, it doesn't eliminate the deduction. It caps the deduction. Many of the commenters seem to think if you have a home loan for $500,001, you lose the entire deduction.