The Impact of Tax Reform


business people fighting over some us money

Just today on Facebook alone I saw 4 different links to stories predicting doom and gloom for real estate because of the tax law. It seems to me that we live in an astonishingly political world, and in that world an effort is always made to fault and condemn the politics that we don’t line up with. In this case, everything about the tax law must be bad and counter productive. Right? Well, I’m sure plenty of it is….but these issues relating to real estate sure made me think a bit. Take the Mortgage Interest Deduction change for example. Its was capped at $1,000,000. Now it’s $750,000. The $250,000 difference will end up being about $9800 (assuming you use this deduction) in interest you can’t write off. (Also, assuming you have a loan of $1,000,000). Some of the posts I read cast a fair amount of fear about this change.

Here’s one of the reasons I get confused…in 2017 I sold 5 houses where the buyer’s loans were WAY over the $1,000,000 cap. This cap that’s been there since 1986. In one case, the buyers loan was $798,000 over the cap. The other 4 were, $250k, $350k, $500k and $560k OVER the cap. I didn’t realize that until I decided to write this post! I laughed because 4 of these 5 buyers I would consider to be very conservative financially. Nobody cared at all about not having coverage by the MID on these loans. So, in 2018 everybody will start to care?

I’ve seen more than one article claiming that the real estate market could recede as much as 10% as the result of the new tax law. Really? After the mortgage meltdown in 2008 Foster City’s values dropped around 13%…over about 18 months. That was when the World’s financial institutions were teetering, the stock market had tanked and loans were very hard to get. It’s when there was massive uncertainty. Today, the stock market is consistently in record territory, the economy is strong, interest rates are low and loans are easy to get. After that history, are people going to quit buying houses because they can’t fully write off their State and Local Taxes?

Oh yeah, here’s a few more factors that suggest to me that a crash probably isn’t imminent cuz of the tax law:

*As of 3:54 today there are 157 active single family houses on the market in ALL of San Mateo County. Even scarier…67 of them are priced above $3,000,000. Only 52 are priced under $1,500,000. OK, this is clearly the worst time of the year for inventory….but how many new listings need to arrive to help prices moderate? Quintuple maybe? I had several listings this year where I had at least 200 people at ONE open house. With this kind of supply problem how is the market supposed to crash?

*According to my friend Bob Bredel at San Carlos Blog “There are currently 18 peninsula companies who have filed their S-1 and are ready to go public in 2018.  Granted, not all of them will be Google-like in their IPO, but it’s a staggering number. The real strength of this statement is that you have a lot of very smart people betting huge sums of money that market conditions will be favorable enough in 2018 to publicly debut their companies.”

*OK, I know this is early….but my friend Jeff Lamont had a 3 bedroom house at 1746 Lake in San Mateo listed for $998,000. He got 13 offers and it sold for $1,420,000….AFTER the tax law passed. I’m betting we’ll see more stories like this once we DO get a few more listings out there.

Maybe things will slow, maybe the prognosticators are right? I kind of doubt it though….

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