Tax plan may hurt homeowners.
California agents fear Trump’s tax reform plans would hurt home buying in state
California’s largest group of realty agents has warned that a Republican tax-reform proposal would erode the attractiveness of buying a house in the Golden State — but economists pointed out Thursday that these effects could also cause a dip in home prices that have skyrocketed.
California Realtors Association President Geoff McIntosh suggested the Republican plan to eliminate state and local tax deductions, such as property taxes, could hurt California and its housing market.
“The average California homebuyer could end up paying $3,000 more a year in taxes under the proposal,” McIntosh said in an emailed statement.
Only homebuyers who choose to itemize deductions would be affected if the reform plan strips away their ability to deduct property taxes on their federal returns.
Even if the tax reforms are approved and ultimatelymake home buying less attractive, that could also bring potential benefits for buyers, some economists said Thursday.
“There are several variables, but it would reduce home prices,” said Fred Foldvary, a lecturer in economics at San Jose State University. “Right now, home prices are propped up by implicit subsidies, such as deductions formort- gage interest, property taxes, and other tax benefits. All of these puff up the value of residential real estate.”
Experts said it all comes down to the basic rules that govern economics.
“It’s supply and demand,” said Annette Nellen, a professor of accounting and taxation at San Jose State University. “If the demand for housing drops, the prices of
homes could drop.”
The negative impacts from lost tax deductions, however, would primarily affect those in higher income-tax brackets, Nellen said.
Christopher Thornberg, a founding partner and economist with Beacon Economics, agreed that home prices could drop. Yet he questioned how noticeable the decline might be, considering how dramatically home prices have risen in California, especially in the hyper- expensive Bay Area.
“The drop in home prices as a result of the loss of the property- tax deduction would be 0.5 percent,” Thornberg estimated. “You have to put that in the regular context of a market where home prices are going up very rapidly.”
Home prices have been rising in the Bay Area, depending on the region, at anywhere from 7 percent a year to about 15 percent a year. That means any taxreform fallout that might tend to reduce home prices could be tough to notice, Thornberg said.
Over the 12 months that ended in August, the median price for all Bay Area home sales, new and resale, rose 11.6 percent, according to Irvine-based CoreLogic, a real estate data and analytics company.
“The tax reform proposed by the Republican leadership will eliminate the incentive for people to buy homes, shrink the middle class, and raise taxes on hundreds of thousands of California homeowners,” McIntosh said. “Any change that wouldmake home buying less attractive will be detrimental to the housing industry and the nation’s economy.”
President Donald Trump and Republican legislative leaders, however, believe the tax reforms and cuts would spur the nation’s economy, help create jobs, slash corporate taxes and make it easier for businesses to undertake investments.
“This is the right TAX CUT @ the RIGHT TIME,” President Trump tweeted this week in touting the taxreform package. “We will ALL succeed & grow TOGETHER — as one team, one people, & one American family.”