Those who already own a home aren’t going to sell just because they have fewer deductions – where do you move?
Renters in high-priced areas are still motivated to buy so they get write-offs beyond the standard deduction.
Biggest impact? The sliver of the buy-up market who already has a mortgage between $750,000-$1,000,000 and now gets fewer write-offs while paying more for their next house. Besides, how can you measure the exact impact – there are too many other variables to consider.
More than a year after the 2017 Tax Cuts and Jobs Act reduced tax breaks for homeowners, only the wealthiest Americans are suffering, according to a new report.
The real estate industry was concerned about the impact of two items in the 186-page law: limiting the mortgage-interest deduction to $750,000, down from $1 million, and capping the deductibility of property taxes to $10,000. So far, the only casualty has been the priciest end of the luxury market in some of the wealthiest U.S. towns, according to a report Monday from First American.
“At a macro-level, the tax changes have had virtually no impact to the housing market,” Deputy Chief Economist Odeta Kushi wrote in the report. “What we know 16 months into the change is that the highest price points of some of the highest-priced housing markets may suffer as real estate is re-priced to reflect the change in the cost of owning.”
The cap on state and local taxes, known as SALT, has not impacted the housing market nationally because it’s high enough that most homeowners are not affected, the report said. Median house prices have increased by about 5% since the law was enacted, according to First American data.
Economists expected to see the biggest impact in states such as California, New York and Connecticut, where both house prices and property taxes are high. However, statewide measures “have yet to see the anticipated impacts of the tax law materialize,” the report said.
“We must zoom in further geographically to see any meaningful impact on housing from the change in the tax law,” the report said. “Only once we zoomed in to the town level did signs emerge of any impact from the tax law change.”
In Eastchester, New York, about 20 miles north of Manhattan, the list price of homes in the highest-priced third of the market declined 12% in the year following the tax cuts while homes in the town’s bottom third increased 30% in the same period. There was a similar pattern in house prices in the Hamptons, on the eastern tip of New York’s Long Island, and other wealthy towns, the report said.
“The tax law may have reduced demand at the highest price points of high-cost markets, causing prices to fall,” the report said.
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The Tan Clown last week:
Angelo Mozilo, the former CEO of Countrywide Financial, has kept a low profile since being branded the face of the mortgage crisis a decade ago. This week he gave a rare interview to Bloomberg Television to sound a warning about the luxury segment of the housing market.
Homes in the upper end of the market in northeastern and coastal states such as New York and California may lose as much as 40% in value as a result of the Republican tax bill passed in the closing days of 2017, Mozilo said. That would surpass the decline in the overall market during the housing crash that began in 2007.
The tax bill signed by President Donald Trump limited write-offs for mortgage interest and capped deductions for state and local taxes, known as SALT, at $10,000. New York, New Jersey, Connecticut and California — states with a disproportionate number of luxury homes that also have high property taxes to support schools and local services — are suffering as a result, Mozilo told Bloomberg.
“This tax bill was devastating to the middle-to-higher-income homeowner who can’t deduct anything except $10,000,” Mozilo said. “The volume of sales has dropped dramatically, and values are coming down dramatically, particularly on the upper end.”
While wealthy residents in the Northeast and on the West Coast are being directly impacted, Mozilo also predicted the fallout would eventually reverberate throughout the economy.
“Housekeeping staff and gardeners will be fired, restaurants will lose business and the banks that own those mortgages will have to take write-downs and begin foreclosures,” the story said, paraphrasing Mozilo.
When Bloomberg asked why he’s resurfaced after 10 years out of the public eye, Mozilo said he “has great concerns for the country” and, at this point of his life, “it’s time for me to speak my mind.”
Mozilo, the son of a New York butcher who started a two-person lending business in the 1960s and built it into the biggest mortgage company in the nation, was named by CNN and Time as one of the people most responsible for the 2008 mortgage meltdown.
In the Bloomberg interview, Mozilo blamed banks, politicians and bond-rating companies for the financial collapse that began with mortgage markets in the U.S. and spread across the globe.
“Let them believe what they want to believe,” he said. “I never saw it coming. Never.”
In 2010, Mozilo reached a settlement with the Securities and Exchange Commission that did not involve him admitting fault. Mozilo agreed to pay $67.5 million and accept a lifetime ban on serving as an officer or director of a public company. It was the largest settlement by an executive connected to housing collapse.