American Pacific Mortgage

American Pacific Mortgage

Wednesday, November 15, 2017

Tax Overhaul is Opposed by CAR

The California Association of Realtors has come out vehemently against the proposed changes to our tax code, which would eliminate the tax deduction for state and local taxes, as well as the deduction for mortgage interest for all loans over $500,000. Loans currently held with higher balances (up to $1 million) would be grandfathered in. Further it would eliminate the interest deduction for 2nd home mortgages. Deductible property taxes would be limited to $10,000. According to CAR the average homebuyer in the state would pay an additional $3000 in taxes annually.

Living here in the sunny state where it seldom rains, this would definitely put a dark cloud over the real estate market. Our median home price here in Orange County is $790,000 and in LA County it is $595,000. Already, home affordability rates in Southern California have fallen to the lowest level since 2008 and statewide housing affordability fell to a 10-year low as the tight housing market has driven prices higher and higher. The percentage of California home buyers who can afford a median-priced home in 3rd Q 2017 fell to 28%. These statistics do not apply to condos but to single family homes. Condos are more affordable, and 38% of Californians can afford the $440,000 median-priced condo.

To be clear, all these statistics assume a 20% down payment. With less down (including many first-timers) the affordability is lower...and with more down payment, affordability rises.

But, here in California and other high-price states such as New York, affordability will drop even more if the tax bill goes through as proposed. Real estate values will surely drop as fewer and fewer buyers can afford homes. A recent article in the WSJ notes that in NYC sales are slowing as buyers ponder the effect the tax changes could have to their disposable income.

We always advise clients as to the after-tax consequence of owning a home with a mortgage, and how the interest and RE taxes will provide them with a deduction on their tax return. We'll see!

No comments:

Post a Comment