2 weeks ago

March 2018

12 | ARROYO |

12 | ARROYO | 03.18

WILL THE NEW TAX LAW HAMMER CALIFORNIA PROPERTY VALUES? Pasadena may emerge relatively unscathed by tax reform’s negative impact on California’s housing market. BY KATHLEEN KELLEHER President Donald Trump may have dented the growth of California property values when he signed the Tax Cuts and Jobs Act into law last December, experts say. The new law sharply reduces deductions of mortgage loan interest and property taxes, and also caps other local and state tax deductions — gutting many financial incentives for home ownership. The state’s more than 6.9 million homeowners are grappling with the new law’s impact on their tax bills — both immediately and over the long term. The big question is, what will the tax hikes do to the housing market and property values? “The 2018 tax reform bill is going to have an adverse affect on housing sale prices and housing supply in California,” said Oscar Wei, a senior economist for California Association of Realtors (CAR). “It may not be a significant impact, but it will have an impact. Prices will continue to grow, but the tax reform bill lowers the price growth.” Both home prices and appreciation are expected to take a hit from the new tax bill. Before it passed, California home prices were predicted to grow 4.2 percent by the end of 2018, Wei said. Factoring in the slashed deductions, CAR has lowered its growth rate prediction to 3.2 percent, he added. By contrast, he noted, single-family home prices in 2017 grew at 7.2 percent. The median projected price of a California house in 2018 is $555,600 — $5,400 less than the median predicted before the new law. The 2017 median house price was $538,500, said Wei. (These projections don’t include condos, townhouses and new construction.) Nationally, home prices are predicted to be 4 percent lower than they would have been without the new tax legislation, with the impact peaking in summer of 2019, according to a report by Mark Zandi, chief economist for Moody Analytics, a New York– based economic research company. “Any longer-run benefit from the lower marginal tax rates will be washed away by the fallout from the bigger budget deficits and government debt load,” Zandi, a critic of the tax reform plan, wrote. “Good tax reform is very difficult to do.” And the tax reform bill lawmakers passed did not get it done, he added. Still, some real estate experts and economists expect house sales in Pasadena and other hot markets, where demand outstrips supply, to sell as briskly as before tax reform. “I have not seen any impact on the market yet,” said Shel Downing, a Keller Williams Realtor, who sells property all over Southern California. “I am seeing a slowing in outlying areas such as Upland in the last two or three months. But in the hubs like beach cities and Pasadena, I have not seen it.” But tax reform may still impact demand for moderate-priced homes because some potential buyers may find that renting is preferable with the new increased standard deduction, said Wei. “The impact is small to this price segment, because the supply in this sector is extremely short,” he continued. “Since there is more demand than the supply can fulfill, the impact on sales is very minimal.” The most competitive housing sector is lower-to-middle-range homes for any given neighborhood, said Wei. The new law is not expected to impact that price sector because there are far more buyers than available houses. –continued on page 15 03.18 | ARROYO | 13