Listen to the Real Estate Prognosticators and they are divining a BIG year in Real Estate. But how so, you might ask? Are prices going up (or down)? Is it going to be easier for First-time homebuyers to get into homes finally?
Well, what if I told you that the Tax Bill signed into legislation by President Trump on Dec 22nd is certain to drive changes in Buyer and Seller behavior? The honest truth is that the enormity of the changes and the complexities of exactly how it will affect each taxpayer has yet to be fully realized. Accountants have postponed vacations this holiday season to dig in to figure out strategies for their clients now and in the coming year!
NOTE: I am NOT an accountant so please check with your tax advisor as he/she may have better information than I have gleaned from my sources on the new tax reform bill.
Before the tax bill became a reality, economists were predicting a slowing growth of pricing at 4.1% (with a norm at around 6%). After the bill passed, the economists in the Real Estate Industry have suggested that prices may fall in the high priced coastal areas with buyers there moving to better tax advantaged areas. A Redfin survey found that home BUYERS will leave High-Tax States with the cap of $10,000 for SALT (State and Local Taxes). My thought is that’s likely to influence more Bay Area residents than us in Sacramento. Prior to the tax bill’s passage, Zillow found that out-of-area buyers were opting to search for homes in mid-tier metros such as Nashville, Phoenix, Atlanta, as well as Sacramento. What’s going to be interesting is that buyer behavior can be measured on these listing portals but we’ll have to wait to see what types of changes they capture. Will the numbers of buyers drop?
Zillow has estimated that only 14% of homeowners will claim the mortgage interest deduction for 2018, down from 44%. They suggest that the tax bill would take away some of the financial incentives to buy. Homeowners will only be able to deduct interest on a new mortgage (taken out between Dec 15, 2017 to December 31, 2025) up to $750,000 or $375,000 for married taxpayers filing separately. Various industry sources suggest that inventory may be impeded by homeowners choosing not to sell because of the tax implications on the buy-side. I truly hope that doesn’t happen! It’s been a highly competitive environment for a while now and no one really wants to see it get worse.
Home Equity Loan Interest
In various sources, what they’re saying is different but it looks like… Equity loan mortgage interest will only be deductible if it’s used for home improvement. You supposedly cannot use it to go to Europe, pay for your kid’s college education, buy a new car, or pay off your credit card debt. THIS HAS NOT BEEN CONFIRMED YET, but I have read variations of this. I get it. How is the IRS going to know what you’re using the money for? I don’t know! But that appears to be the gist of it. Oh, and it’s supposed to apply to existing home equity loans and the combined total of a first mortgage and the equity loan(s) are limited to the deduction up to the $750,000 cap. I’ve asked my Accountant to get the nitty gritty on the details and will update you but you should be aware of the implications
Property Taxes in California (and State and Local taxes)
Lastly, a lot of people have asked me about the SALT deduction that everyone is running to pay at the County Assessor’s Offices (for property taxes) and FTB. Again, I’m not an accountant, but the deal is that if your combined payout to State Tax (California Franchise Tax in our case) and Property tax will exceed $10,000 in 2018, you will be able to prepay BEFORE DECEMBER 31, 2017, the portion that you’ve been billed only. Our second payment of property taxes has been issued and is due in April and if you want to pre-pay, you’ll need to pay it online. Mailed in payments will not count according to the county. For all you who hate California, feel fortunate. Not all states have issued property tax bills for 2018 yet and the IRS is not allowing them to estimate their taxes. Here’s the links that my accountant sent (if you have an impound account and you want to pre-pay, I’d pay it now and deal with the lender later):
- Sacramento County https://eproptax.saccounty.net/
- El Dorado County https://taxcollector.edcgov.us/Menu.aspx
- Placer County https://www.placer.ca.gov/departments/tax/taxes/taxbillsearch
- Amador County https://common1.mptsweb.com/MBC/amador/tax/search
- YoloCounty https://common2.mptsweb.com/megabytecommonsite/(S(mbccvthcxtodxeckoifo1ygr))/PublicInquiry/Inquiry.aspx?CN=yolo&SITE=Public&DEPT=Tax&PG=Search
Buying a home is still a wealth building exercise if you can afford it. All things being equal, paying a mortgage over time and paying down the mortgage is a way to increase your percentage of ownership in an appreciating asset. Home prices do go up and down in cycles but over the course of a 30 year mortgage, a homeowner will own a larger and larger share of a valuable asset.
Stay tuned. As I get more information, I’ll relay it!
Survey Results are in!
The results of my very unofficial survey:
- 30.8% are likely to purchase in 2018
- 14.3% are likely to sell in 2018 (can you see why we have inventory problems?)
- There was a remarkable 50/50 split between those who felt they would benefit and those who wouldn’t benefit from the recent tax legislation.
- We’re an optimistic bunch when it comes to resolutions though! A majority of us are positive on our New Year’s Resolutions – a whopping 88% believe they’ll stick to them. Good luck!
Thanks for all who played along!
Happy New Year!
I wish you the very BEST that 2018 will bring you!
If you have real estate goals in 2018 or beyond even if it's in another state, feel free to reach out! I've helped many people locate a Realtor all over the US because I know what a good Realtor is and I do the interviewing (and it doesn't cost you anything for my service). If you're local to the Sacramento area, let's chat. You will find that I'm 100% attuned to my clients' best interest even ahead of my own. That's considered Fiduciary responsibility and I'll be writing about that in an upcoming blog post.
It's been great to get a lot of feedback on the blog and for people to ask questions! 🙂 If you have topics, you'd like to see covered. Send 'em. Reply to this and it only goes to me.
Stay safe this weekend.