Why hasn’t SD real estate prices fallen off a cliff yet?

[FlyerInHi]

[quote=mom2dmd] I cited the Forbes article to point out: the average taxpayer has yet to process the implications from the new tax laws; and, thus, the impact from those new tax laws on the SD real estate market is still TBD. [/quote]

The average taxpayer cannot process anything. He just listens to the realtor who is still telling him that, after tax, his monthly payment will be x. TBD after they buy the house and make the payments. A recession will bring things into perspective.

[ocrenter]

[quote=henrysd]The SALT effect on urban California housing is certainly exaggerated. For people in NJ and NY with 3% property tax, they are hurt big way for almost all home owners. But for California, it is much more limited. We have only 1% property tax and many people wrongly claim Mello-Roos as part of property tax deduction in the past.

The SALT restriction mostly affects (assuming 2 income family here):
1) Very high earners like those make $800K or more a year. Those people were able to deduct all SALT expenses in the past without triggering AMT. They had 39.6% normal tax rate, so their effective tax rate before AMT was higher than the AMT rate of 28%. The new law would strip their ability to deduct SALT.
2) Middle middle class stretching themselves to buy homes at 5 – 6 times of their annual income of $120-200K. They were able to deduct all SALT expenses in the past without paying AMT. They have around 15 – 30K worth of SALT expense, but only allow 10K now.

For upper middle class (those make $220-600k annually), SALT restriction has zero effect. Those people were paying AMT tax in the past, so SALT expenses were not allowed anyway. Actually the removing of AMT in those income range in the new tax law tremendously increases their after tax income. This creates a plus factor for housing demand.

For low middle or lower income class, it is unlikely they have SALT above 10K. Even if it is above, it will be by small amount. I know people bought homes 20 years ago locked in low property tax and living on not-so-much income, they may be hurt in other aspect of tax change, but not much with SALT deduction.[/quote]

well put. thanks.

at risk of thread-jack, this may perhaps accentuate the financial benefit of mello-roos early payoff.

[Coronita]

Are today’s home buyers really strenching thin to buy. Or is that a hyperbole and underestimation of today’s buyers still able to buy?

I keep hearing people say “how could people afford to buy at these levels?” they must be buying and totally over extended. Do we have data on this, or that just anedectotal based on immediate personal/peer observations ?

I tend to believe people are underestimating people’s ability to buy.

that said, rising rates and a coming recession , I think will make things very interesting.. Impact of SALT probably not nearly as an issue of those other two.

[The-Shoveler]

[quote=flu]

Also, SALT caps don’t apply to people owning investment properties. they still write off the full property tax as a cost. Plus rent prices are still insanely high. Plus Prop 10 was thankfully defeated. No hurry to exit as a rental.
..[/quote]

Some low end properties will “still” cash flow even at this level and these rates.

[Coronita]

[quote=ocrenter]

at risk of thread-jack, this may perhaps accentuate the financial benefit of mello-roos early payoff.[/quote]

Very good point. If you are able to pay off your mello-ruse (sic) early, conceivably cash-out refinance on the primary and use the funds to pay off the mello-ruse (sic)…The mortgage interest rate is probably lower than the mello-roos interest rate, you lower the property tax that will be subject to SALT cap, and as exercise for the reader, you can try writing it off with the rest of your mortgage interest deduction. I wish the MR in Carmel Valley could be paid off earlier. I tried, it can’t.

I sort of regret paying off my 2.5% 15 year mortgage early. A 2 year CD is now at 3% a 5 year CD well above that. If i left the same money in such such a laddered product, it would have been free earned interest. Many of you that kept with your ridiculously low 15 and 30 year fixed loans when rates were around 3% are going to make out like bandits. You won’t be able to rent out a comparable home these days at comparable monthly costs, so what motivation would you have to sell?

[Coronita]

[quote=The-Shoveler][quote=flu]

Also, SALT caps don’t apply to people owning investment properties. they still write off the full property tax as a cost. Plus rent prices are still insanely high. Plus Prop 10 was thankfully defeated. No hurry to exit as a rental.
..[/quote]

Some low end properties will “still” cash flow even at this level and these rates.[/quote]

Agreed, but the question soon will be, will we want to? Let’s assume we could cash flow say at 4-5%. Would you want to deal with the hassle of a CD ends up being 4-5% with virtually no risk, and if you think the era of large appreciation is history….
That 4-5% in dealing with a rental probably doesn’t include turnover and vacancy and unexpected repairs

[The-Shoveler]

Well there is still depreciation.

For those buying a low end primary it probably still beats renting.

[FlyerInHi]

[quote=flu]

You won’t be able to rent out a comparable home these days at comparable monthly costs, so what motivation would you have to sell?[/quote]

True, the high rents are holding up the market.
But values are based on transactions and investor transactions are drying up with inventory going up.

A jobs led recession will cause rents to drop. With a recession coming, I wouldn’t buy until 1 year after the recession is announced.

[ocrenter]

[quote=FlyerInHi][quote=flu]

You won’t be able to rent out a comparable home these days at comparable monthly costs, so what motivation would you have to sell?[/quote]

True, the high rents are holding up the market.
But values are based on transactions and investor transactions are drying up with inventory going up.

A jobs led recession will cause rents to drop. With a recession coming, I wouldn’t buy until 1 year after the recession is announced.[/quote]

impending recession seems to be the sentiment. which can be self-fulfilling.

[ocrenter]

[quote=flu]

I sort of regret paying off my 2.5% 15 year mortgage early. A 2 year CD is now at 3% a 5 year CD well above that. If i left the same money in such such a laddered product, it would have been free earned interest. Many of you that kept with your ridiculously low 15 and 30 year fixed loans when rates were around 3% are going to make out like bandits. You won’t be able to rent out a comparable home these days at comparable monthly costs, so what motivation would you have to sell?[/quote]

same reason I resisted paying off my 2% student loan…

[gzz]

There’s no sign of a recession. Lots of employers have vacancies they want to fill, but not so badly they will raise wages on everyone to fill it.

Cal RE has a lot of factors that could allow another bubble to form. This time I want to ride it up!

The biggest “untapped” possible factor is $15 trillion worth of foreign mature market gov bonds making 0% to 1% decides they want the higher yields US assets offer. They got burned last time they did that because they stupidly purchased “AAA” private-label MBS.

Those memories are fading, meanwhile German/Japanese investors who invested in the USA 2 to 6 years ago massively outperformed their conservative brothers who purchased low to negative yield government bonds.

And these days no need to buy private MBS. Plain old Treasury Notes and GSE bonds still pay a ton more than their local bonds.

[The-Shoveler]

I am not as sure a recession is coming anytime soon now.

I am thinking if the fed holds here (and communicates such), maybe a deal with China and we could be back in the race.

We will see I guess.

[Coronita]

[quote=The-Shoveler]I am not as sure a recession is coming anytime soon now.

I am thinking if the fed holds here (and communicates such), maybe a deal with China and we could be back in the race.

We will see I guess.[/quote]

I don’t think the trade war will be resolved anytime soon. China can sit it out and hope for a presidential change. China’s premiere can rule indefinitely.

Well unless the Trump side concedes.

[The-Shoveler]

We will see I guess, seems like both sides could benefit from a compromised deal (the sooner the better),

[spdrun]

Ocrenter: one can hope…

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