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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Mazzy's picture

Hence why most Americans are retarded about tax brackets (especially low-wage republicans.  They think if you earn an extra buck you pay the entire next bracket. 

We could have everyone earning under $50k per year just not pay income taxes at all (would save a lot of time/money on filing but I'm willing to bet the tax firm industry is against it), but step it up steeply for the uber wealthy like was done a century ago.

Umh's picture

While I am somewhat sorry for the fools that invested badly I am generally happy that assholes get trick every once in a while. I am very tired of hearing about brother-in-law XXX that is making a killing on houses.

homiegot's picture

Ha ha not mine!

Crash2012's picture

This is a TERRIBLY screwed up STORY!

 

Somehow, the author swapped mortgage INTEREST with mortgage AMOUNT mid-way in the story.  This led to the idiotic claim that mortgages over 500k would be impacted.  The actual proposal, of changing this INTEREST deduction from 1 million to 500 thousand will effect only a TINY sliver of the market.

 

For example, a mortgage at 4% would require a balance of about 25 million to acrue such an amount.  This proposal would reduce that to about a 12.5 million mortgage.  This is a very tiny subset of the mortgage business as making 41,000 monthly mortgage payments (under the 500,000 limit) places the payors of such mortgages well into the top .5 percentile of all taxpayers.

 

Quivering Lip's picture

Funny thing is I thought Republicans were for a smaller federal government. Allowing the Federal government to tax one on property taxes and state taxes (after $10,000) TAXES one migh t have already paid seems a bit like double taxation. Same as the estate tax. 

And fuck this red state blue state shit. North Carolina 5.75 % Georgia 6%  Ohio 5.35% South Carolina 7% Idaho 7.4% all voted for Trump and have high state income taxes. Make a decent amount of money and live in a nice neighborhood and pay a decent amount in property taxes and you're fucked.

techpriest's picture

They talk about it like Democrats talk about caring for the poor. Neither are true, they just want your vote. And when you get the occasional Ron Paul i.e. actual small government type, he is quickly ostracized.

DIGrif's picture

"And when you get the occasional Ron Paul i.e. actual small government type, he is quickly ostracized."

 

100% correct there, and the majority of Americans are fuck tards that allow that.....so...eat the shit sandwich you have created America.

ihatebarkingdogs's picture

Only one commenter caught that the author mxed mortage INTEREST with mortage AMOUNT. 500K of INTEREST per year is about a 12.5 million dollar mortage. Not many homes in the 12.5M+ range. This story is poorly-written, and poorly edited to let the mis-information through.

pparalegal's picture

Isn't that a rough map of the current unhinged Hillary "college graduate" voters?

PhiPhi's picture

So demand for properties <500k increases making it harder for those of modest means to get a foot on the bottom property ladder rung.  Same old story, same old organ grinder, different monkey.

ioniancat21's picture

The housing and rental market in NYC is totally overpriced in most areas so this tax plan sounds like music to my ears. I'm tired of paying for these obscene rents with these cocky owners so now all I've been hoping for is a severe correction of 30% or higher. The more destruction in price the better. If I can get a $200-$400 dollar decrease in rent while the homeowners get wrecked, that works for me. Might as well let my 401 blow up with it if the crash can be more harsh, I'll never retire anyway so if we can bleed the baby boomers, I'll take that loss with a smile as we watch the housing ATM come to an end...

Witkh13's picture

The government artificially inflating the housing market is exactly the problem... sooner or later, that bubble 'bursts' such as it did in ~2008;  And there are other determental affects from the government meddling.  Basically, if the government changing it's "tax plan" hurts any "market" by getting out of it, means the government should have been free of any such meddling in the first place.  This is just another example of how government meddling in the economy hurts everyone, including the government 99% of the time.

Witkh13's picture

... miscommented twice ...