For the past few weeks, Chuck Schumer and Nancy Pelosi have screamed to anyone who would listen that the GOP tax plan is nothing more than a tax break for millionaires and an attack on middle class working families. But, as the Wall Street Journal points out this morning, America’s millionaire, billionaire, private jet owners living in expensive urban areas are set to lose ‘bigly’ if Trump’s $500,000 cap on the mortgage interest deduction survives.
But in the priciest markets, concentrated in some of the nation’s largest coastal cities, the impact could be significant. In the San Jose, Calif., metropolitan area, 75% of new mortgage loans thus far in 2017 were for more than $500,000, according to an analysis by CoreLogic Inc., a housing data provider. The median home price there is more than $1 million, and even small starter homes can climb well above the proposed cap.
In the San Francisco metro area, 60% of new loans were for more than $500,000, while in Los Angeles and San Diego, the figures were 44% and 37%, respectively.
The impact wouldn’t be limited to California. In Honolulu, 48% of loans were greater than $500,000, while the figures for the New York area and Seattle were 22% and 25%, respectively.
An analysis by ATTOM Data Solutions yielded similar results. In the Washington, D.C., area, 35% of purchase and refinance loans in 2017 thus far were for more than $500,000. In Hawaii, 15% of loans fell into that category, while in California 12% did.
In addition to capping the mortgage interest deduction, the current GOP bill also limits the amount of property taxes that households can deduct to $10,000 annually.
Not surprisingly, the assault on McMansions has angered the realtor lobby which we’re certain will fight tooth and nail to preserve the status quo.
Jeff Barnett, a California realtor and vice chairman of the National Association of Realtors’ large-firm real-estate services committee, said his area will be hit “very, very hard” if the tax bill passes. Even if corporate tax cuts help boost the economy, he doesn’t think that will be enough to compensate.
“You’ve taken away so many incentives for housing, they can’t spend” the money from any extra economic growth, he said.
Of course, as we pointed out earlier this week (see: Trump Is About To Crush Home Prices In Counties That Voted For Hillary: Here’s Why), Clinton won the vote in the top 45 counties in the country with the highest median home prices which has resulted in rampant speculation that the mortgage cap is nothing more than a clever punishment levied on Democratic voters.
As Dennis Lee calculated, “assuming that all of these homeowners are taxed at a marginal rate of 39.6%, we find that the increase in tax burden during the first 12 months of homeownership driven solely by the mortgage interest and property tax deduction caps varies from $0 for the county with the 20th highest median home price (San Miguel County, Colorado) to approximately $7,200 for the highest-priced county (San Francisco County, California).” Barclays’ conclusion: these counties – all of which are largely pro-Clinton – would need a 0-11% decline in their median home prices to keep the after-tax monthly mortgage and property tax payments the same for would-be buyers.
Of course, only time will tell whether the swamp (a.k.a. “The National Association of Realtors” in this case) will allow this particular component of the GOP tax bill to survive…
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