March 2018
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WILL THE NEW TAX LAW HAMMER<br />
CALIFORNIA PROPERTY VALUES?<br />
Pasadena may emerge relatively unscathed by tax reform’s<br />
negative impact on California’s housing market.<br />
BY KATHLEEN KELLEHER<br />
President Donald Trump may have dented the growth of California property<br />
values when he signed the Tax Cuts and Jobs Act into law last December,<br />
experts say. The new law sharply reduces deductions of mortgage loan interest<br />
and property taxes, and also caps other local and state tax deductions — gutting many<br />
financial incentives for home ownership. The state’s more than 6.9 million homeowners<br />
are grappling with the new law’s impact on their tax bills — both immediately and over<br />
the long term. The big question is, what will the tax hikes do to the housing market and<br />
property values?<br />
“The <strong>2018</strong> tax reform bill is going to have an adverse affect on housing sale prices<br />
and housing supply in California,” said Oscar Wei, a senior economist for California<br />
Association of Realtors (CAR). “It may not be a significant impact, but it will have an<br />
impact. Prices will continue to grow, but the tax reform bill lowers the price growth.”<br />
Both home prices and appreciation are expected to take a hit from the new tax bill.<br />
Before it passed, California home prices were predicted to grow 4.2 percent by the end<br />
of <strong>2018</strong>, Wei said. Factoring in the slashed deductions, CAR has lowered its growth rate<br />
prediction to 3.2 percent, he added. By contrast, he noted, single-family home prices<br />
in 2017 grew at 7.2 percent. The median projected price of a California house in <strong>2018</strong><br />
is $555,600 — $5,400 less than the median predicted before the new law. The 2017<br />
median house price was $538,500, said Wei. (These projections don’t include condos,<br />
townhouses and new construction.)<br />
Nationally, home prices are predicted to be 4 percent lower than they would have<br />
been without the new tax legislation, with the impact peaking in summer of 2019, according<br />
to a report by Mark Zandi, chief economist for Moody Analytics, a New York–<br />
based economic research company. “Any longer-run benefit from the lower marginal tax<br />
rates will be washed away by the fallout from the bigger budget deficits and government<br />
debt load,” Zandi, a critic of the tax reform plan, wrote. “Good tax reform is very difficult<br />
to do.” And the tax reform bill lawmakers passed did not get it done, he added.<br />
Still, some real estate experts and economists expect house sales in Pasadena and<br />
other hot markets, where demand outstrips supply, to sell as briskly as before tax reform.<br />
“I have not seen any impact on the market yet,” said Shel Downing, a Keller Williams<br />
Realtor, who sells property all over Southern California. “I am seeing a slowing in outlying<br />
areas such as Upland in the last two or three months. But in the hubs like beach<br />
cities and Pasadena, I have not seen it.”<br />
But tax reform may still impact demand for moderate-priced homes because some<br />
potential buyers may find that renting is preferable with the new increased standard<br />
deduction, said Wei. “The impact is small to this price segment, because the supply in<br />
this sector is extremely short,” he continued. “Since there is more demand than the supply<br />
can fulfill, the impact on sales is very minimal.” The most competitive housing sector<br />
is lower-to-middle-range homes for any given neighborhood, said Wei. The new law is<br />
not expected to impact that price sector because there are far more buyers than available<br />
houses.<br />
–continued on page 15<br />
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