Cal Realtors Predict Tax Cut Could Cause 12% Real Estate Price Crash
AGENDA 21 RADIO
BY CHRISS STREET, NEWPORT BEACH, CA
The National Association of Realtors warned that the Republican tax cut bill could cause real estate prices to fall in every state, led by a California with up to a 12 percent crash.
The National Association of Realtors (NAR) estimates that the proposed Republican tax cut passed by the U.S. Senate will cause residential real estate nationwide to fall in price by at least 10 percent, due to capping mortgage interest deductions on loans up to $500,000.
Homeowners under the current tax law are allowed a deduction for mortgage interest paid on mortgage debt of up to $1 million, and is available for interest on mortgages for a principal residence and one additional residence. The $1 million limitation represents the combined allowable debt on two residences. Mortgage interest on up to $100,000 of debt on home equity loans or lines of credit is also qualified for the deduction.
The NAR waged a successful political battle to prevent the Obama Administration from reducing the value of all itemized deductions, including the mortgage interest deduction, for taxpayers earning above the 28 percent income tax bracket. That would have covered single filers earning over $190,150 and married filers earning over $231,450 a year.
But the President Trump’s populist “Make America Great Again” tax cuts focused slashing the federal corporate tax rate to 20 percent to incentivize the on-shoring of corporate profits held overseas to kick off a manufacturing capital investment boom in the U.S.
With the average national mortgage debt of only $222,261, the vast majority of American homeowners will not be affected by the Senate bill’s $500,000 cap. California with a $310,676 average mortgage debt is the eighth highest in America. Only former President Obama’s home state of Hawaii is above the cap, with average mortgage debt of $667,299.
Despite the most California homeowners not being adversely impacted by capping the mortgage interest deductions, NAR estimates the Golden State will suffer 8 and 12 percent decline in home price declines. That works out to a “loss in home value of between $37,710 and $56,550 for the typical home owner.”
Although acknowledging that many Californians are upset at the state’s lack of housing supply pushing up housing prices, NAR makes the novel economic prediction that plummeting home prices will exacerbate the supply problem by causing sellers to take their homes off the market.
It is conceivable the NAR could still derail tax reform as the Republican U.S Senators and House members sit down for what is called a joint-conference committee to iron out legislative differences. But the Senate bill passed after midnight on Dec. 1 moved closer to the House bill that also capped mortgage interest deductions on loans up to $500,000.