GOP tax plan will be a bad hombre for the California housing market:  National Association of Realtors warns that prices can fall by 8 to 12 percent if tax plan is approved.

It seems like a lot of people are tripping over themselves regarding the GOP tax plan.  For California, the housing cheerleaders always trumpeted the massive amount of tax deductions you got when buying a ridiculous crap shack.  I always found this to be absurd.  You usually got “free market” thinkers on the economy but then suddenly, wanted massive government support when they bought their expensive home.  In the Bay Area a crap shack will cost you $1.5 million if you even want to have a parking spot within walkable distance.  So it is no surprise that the GOP tax plan doesn’t give two seconds of thought as to what is good for California.  And good just means on what side of the dinner table you are sitting at.  Frankly, the rest of the country subsidizes the crazy housing market in California and other expensive states so it never made sense to have a mortgage interest deduction of up to $1,000,000 when the typical house in the U.S. costs $200,000.  In regards to housing, the GOP tax plan will not help California housing values.

Subsidizing expensive California

There is some irony that San Francisco, a city that touts to be progressive and open to all is so incredibly expensive that only the elite can afford to live there.  Surely you can see the cognitive dissonance in that?  We want to help you so long as you stay far and away from our expensive NIMBYism enclave.  An area where making $100,000 a year will confine you to living with roommates and eating Ramen from your tech cubicle.

Here is why capping the mortgage interest deduction makes total sense from an equitable perspective.  First, most people don’t live in expensive California crap shacks:

zillow

They typical home costs $203,400.  So assume a 10 percent down payment and you have an $183,060 mortgage.  Assume that mortgage is at 4 percent interest.  You are paying roughly $7,200 a year in mortgage interest.  Now let us assume you buy a $1,000,000 California crap shack.  Say you put down 20 percent.  You are paying over $32,000 a year in mortgage interest. So why in the world is the person buying that California crap shack getting such a big mortgage deduction when by definition the typical home in the US costs $203,400?

Of course, the National Association of Realtors (NAR) is upset by this:

“(Mercury News) The tax incentives to own a home are baked into the overall value of homes in every state and territory across the country,” association president Elizabeth Mendenhall wrote in a news release over the weekend condeming the proposed tax overhaul. “When those incentives are nullified in the way this bill provides, our estimates show that home values stand to fall by an average of more than 10 percent, and even greater in high-cost areas.”

I love how this is phrased.  So basically socialism is baked into the home price.  Okay you free market wannabes.  You can’t have it both ways (okay, you can).  The reason the NAR is upset by this is that they make money when people are churning real estate – meaning more buying and selling.  They want volume.  Like the McDonald’s of housing.  So if this stalls home sales they lose.

Another fun item for California is the following:

“Another controversial housing-related item in the tax proposals is the capital gains provision. Under current law, homeowners can exclude up to $250,000 (or $500,000 for married couples) in capital gains on the profit from the sale of a home — if they have lived in the house for two of the last five years. Both the House and Senate proposals would change that — homeowners must have lived in the house for five of the past eight years to qualify for the savings.

Last year, 13 percent of homeowners in California had lived in their home for between two and four years, meaning they won’t be eligible for that tax exclusion, according to the National Association of Realtors. Some housing experts worry the GOP tax plans will encourage Bay Area homeowners to stay put instead of selling, exacerbating the region’s housing shortage.”

Bwahaha!  So much for the home equity train.  I’ve talked about this before but housing cheerleaders like to paint this quaint vision of getting old in a home, painting the walls of your kids bedroom, and acting as if you live in a place for 30 years.  No, in reality most are house humpers that lust after those HGTV shows and can’t wait to sell into a bigger property.  Well now, you have to wait five to eight years before working on those cap gains.  Can you tolerate a crap shack for two years?  Sure.  Can you tolerate it for 5 to 8 years?  Hmmm.

And most Americans don’t itemize:

itemizers

This bill does not help your typical California house humper.  It will help the majority of renters.  Why?  Because of the above.  The standard deduction going from $6,350 to $12,000 for single filing households and from $12,700 to $24,000 for married filing households actually helps out the typical American household.

I hesitate to get into the tribal mentality of “blue” team and “red” team because ultimately it divides people from actually doing a deeper analysis.  There are good ideas and bad ideas coming out from both parties.  In the above case regarding housing, a place like Los Angeles County with the majority of households being renters, it will help at least with their tax bill.  This won’t help your future crap shack buyers in the Golden State.

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126 Responses to “GOP tax plan will be a bad hombre for the California housing market:  National Association of Realtors warns that prices can fall by 8 to 12 percent if tax plan is approved.”

  • Many of the rich will pay more under new tax plan, contrary to what the liberal MSM try to portray the new tax plan as a giveaway for the rich.

    If we take the example of a high-net-worth individual living in California and making $1 million a year, that person’s state taxes amount to $102,000. If that person owns a $1.5 million home, property taxes would be around $27,000. As the new plan eliminates mortgage interest deduction above $500,000, this person would lose the ability to deduct roughly $20,000 in interest expenses.

    In total, this person would lose roughly $150,000 in deductions. At a 40 percent tax rate, this person would end up paying around $60,000 more in taxes under the GOP plan.

    The idea that this is a tax giveaway to the rich just doesn’t hold true. It may help somebody that lives in Florida, who doesn’t have to worry about state tax deductions, because there’s no state income tax. And it does help out corporations by lowering their tax rate… but as far as individuals who lose their itemized deductions, this is going to, in effect, be a tax increase.

    That rich people will lose the SALT is a state issue, not a federal government issue. The rich people from CA were subsidized for too long. There were the rich people in CA (politicians) who decided to steal from their citizens to support all the millions of illegals and sanctuary cities. Since they wanted this, let them pay for it out of their pocket. Let’s see how fast they restructure the state taxes; Ha!…

    • Although I completely agree that the MSM is a joke the “rich” they are referring to is the ultra rich (like the D Trumps etc.). It’s pretty obvious that this is a gigantic wealth transference scheme that has the potential to blow up the entire economy. Besides that, millionaires who live in California do so because there is nowhere else in America with the combination of weather, great natural beauty & cultural opportunities as this state provides. On top of it all this bill is designed to jack up equity & asset valuations as corporate tax rates go down and…the lower tax rate on sole proprietorships partnerships LLCs etc. will put more money in the pockets of the non W-2 types. It’ll probably just make housing less affordable for the working stiffs.

      • You are right in some respects, but those ultra rich like Warren Buffet and Soros had plenty of loopholes ALWAYS. Otherwise, why did they scream during 8 years of Obama that they pay “less taxes than the secretary” (percentage wise)?!!??…

        The central piece of the legislation was to lower the corporate tax rate of small business owners from 35-39% to 20% (the highest in the industrialized world). I paid them in many years. The small business owners were the most affected because they actually paid those rates since they could not afford the overhead of an army of lawyers and tax experts like the big corporations. In most cases they paid more in taxes than GM or GE. They are the number one job creators in this country not the big corporations developed around the politicians. The government can “create” jobs only in the measure they can tax. Tax who and for what? To install a bath fan at a cost of $22,000 per fan?

      • Natural beauty? Is that what you call the black smoke billowing out of burning houses?

    • I think this new plan is saying to the typical house humper….”You idiots be realistic on what you buy. We are not being forgiving this time around.”

      I think more high end workers are likely going to be downsizing or likely rent. They may even take less on their home sales just to leave Dodge.

      I think smaller homes or less priced homes will likely see a surge with this plan in my opinion.

    • Anybody else notice the timing on this thing? I’m sure it’s simply coincidence that nobody is going to have time to sell out of their real estate positions before the new rules take effect.

      • The point here is that there’s no time left to exit the theater. Current CA homeowners will be grandfathered on the MID and CA RE taxes are already low relative to a lot of other states.

        This whole thing is going to tighten supply because potential sellers will be even more disincentivized to sell. That means the increasing number of owners who move out of state will be more likely to hold and lease out their homes instead of selling. The increased supply and the doubling of the standard deduction is good news for renters.

    • Yep, this lays that out nicely: https://www.linkedin.com/pulse/watch-out-effects-tax-reform-migration-fiscal-conditions-ray-dalio/

      Flight out of California is likely to be epic. Reno may end up being too close for comfort.

  • California is already losing almost 100,000 taxpayers per year.… If this tax bill goes through, this is really going to force a lot of people out. This is going to have a major impact on the high-tax states like CA, and this is going to be a revenue drain.

    Yes, long term the population in CA is increasing but the big question is this – Is the population increasing with taxpayers or with leaches and dreamers???!!!… What is the impact going to be on state pensions and sanctuaries???!!!!…..The history shows that as a state you get more of what you encourage and less of what you discourage. You discourage the businesses and taxpayers through a myriad of taxes (under different labels), you will get less of them because of migration. As an example, Apple, the staple company of CA also restructured their taxes through Ireland. More businesses and wealthy individuals will decide that enough is enough. It is not going to happen overnight, but what is the long term effect? 5 or 10 years from now? How will the finances of the state look like if they encourage illegals and discourage the businesses and taxpayers?

    • CA is losing mostly productive working class people. As time goes on, more higher skilled white collar exits are joining the ranks of those leaving.

      The big lie some people promote is that it’s the poor who are mostly leaving. It takes initiative and drive to leave. Those aren’t traits common to unproductive moochers.

      • Many of those ‘moochers’ are your cleaners, nanny’s, gardener’s, and the cheap labor for almost all construction and remodeling! It is the hypocrisy of California’s elitist form of socialism, hire all this help for ridiculously low wages, then smile at the media cameras and act all bent out of shape over social injustice and equality!

    • Payday loans to seniors tripled in CA last year…. APR 372 % !!
      There are more payday loan centers in the USA than McDonald’s restaurants !!

      http://www.dbo.ca.gov/Press/press_releases/2017/Release%20-%202016%20payday%20loans%20report%207-5-17%20-%20final.1.asp

    • It’s funny how people in Red states want CA to fail. We pay in 300 billion and take back 288 billion in federal tax money. The Chinese are the ones buying up the high end real estate here. They usually pay cash and then take out a HELOC to either buy other properties or remodel. If we lose 10-12% of our value the Chinese and other foreigners will just buy up more real estate.
      I would love to know where you get your numbers as far as CA losing taxpayers. As far as the rich saying enough is enough they’ve benefited the most over the last 6 years. They’ll find CA as a bargain, and since most of them are foreigners do you think they would want to live in a backwards state that preaches hate and intolerance as a way of life? Or do you think they’ll want to live in communities were they are accepted? A lot of the cities that have seen the most growth over the last 6 years are communities with foreign born tight knit groups.
      I know I work in one, and as far as the foreign investment my wife works for a bank that makes those loans all day long. When she started they were lending about $100,000,000 a month now they’re loaning our close to $500,000,000 a month.

      • son of a landlord

        We pay in 300 billion and take back 288 billion in federal tax money.

        Stupid argument. You think a state should get back the same amount that it pays in? That is not possible.

        Think about it.

        Some tax dollars must pay for the federal employees in Washington DC who then return money to the states. Other tax dollars pay for overseas military bases, and embassies, and foreign aid.

        Every state should be getting back less than it pays in, because some of what it pays in is spent in Washington or overseas.

      • AJ -Astute analysis; I concur that the rhetoric here – often an extension of GOP and alt-right talking points – rails against any type of equitable distribution and roots against California, in general. Not all red states are intolerant, but to generalize is not entirely incorrect because the racial and ideological elitism is quite pervasive. Listening to perverts like Rush Limbaugh and O’Reilly for hours on end is bad for an ethos. But, the heyday for unchecked WASP domination is almost over and we all will have to evolve or go extinct. California gets it mostly right in looking forward instead of trying to preserve a mythological past – which is conservatism in essence.

      • There are not the people in red states who want CA to fail; they have zero influence on CA politics.

        There are the politicians in Sacramento and the CA governor who want CA to fail despite the climate, natural coastal beauty and all natural resources. Like the liberal/socialist Maduro in Venezuela (so much praised by the socialists in CA) who manage to fail one of the richest countries in South America (full of oil). Then he blame others for his lack of intelligence and common sense.

        You, like a typical liberal, blame the red states for the failing of the liberal idiotic policies of your “smart” politicians. Like Hillary blaming everyone and everything instead of looking in the mirror. You can never improve as long as you blame others for your shortcomings.

      • What’s lost in all the socialist screaming about the tax plan is the fact that rates are getting lowered. You guys are focusing only on the lost deductions, completely ignoring the fact that rates will be lower.

        So the standard deduction doubles AND rates are lowered for everyone. And you socialist fools are screaming about a tax giveaway for the rich. LOL.

        The reason Nancy is calling this a disaster is because she knows it will be disaster for her in 2018. When everyone’s paycheck increases in January, they will know it was Trump and the GOP who made that possible.

      • son of a landlord

        eckspat: But, the heyday for unchecked WASP domination is almost over

        Almost over? WASPs long ago lost their “dominant” position in the American establishment.

        Although Jews make up only 2% of the U.S. population, there are more Jewish students in the Ivy League (prep schools for America’s ruling class) than non-Jewish whites (WASPs included): http://www.theamericanconservative.com/articles/the-myth-of-american-meritocracy/

        the extreme irony that the WASP demographic group which had once so completely dominated America’s elite universities and “virtually all the major institutions of American life” had by 2000 become “a small and beleaguered minority at Harvard,” being actually fewer in number than the Jews whose presence they had once sought to restrict. …

        Harvard reported that 45.0 percent of its undergraduates in 2011 were white Americans, but since Jews were 25 percent of the student body, the enrollment of non-Jewish whites might have been as low as 20 percent,

        Likewise, there’s only one WASP on the Supreme Court.

        Finance, law, media, entertainment, academia — which of these do the WASPs dominate?

      • What about the states that get back over 2X what they put in? In the case of Mississippi and New Mexico, they receive over $2 for every buck they put in the pot.

      • SoCal Guy,

        In the case of Mississippi with a large percentage of blacks and New Mexico with a large percentage of hispanics, I’m sure the unemployment rate among these two demographics do not have anything to do with the expenditure of the federal government. In the case of New Mexico, add for a good measure a large percentage of native indians without employment to better understand the situation. It does not have anything to do with the red state politics but demographics and history.

      • Son of Landlord,

        The jews want diversity but not in high places. When Obama had to nominate for a FED governor he had a “choice” to “chose” between 4 jews. It really did not matter which one have been selected. He just had to give his blessing to make the FED look legit. It just happen that it was Yellen. The other governors before her were also jews.

        You mentioned also the lack of diversity at the Supreme Court and Ivy League Universities. At the Supreme Court they don’t want to have the same % of whites (WASPs) like in the rest of the society. They discriminate, but it is OK for them to discriminate. That 45% whites you mentioned includes also whites from Europe (15% plus 25% US jews). However, if you look at the demographics of those whites from EU (15%), most of them are jews from Europe.

        Above I just stated facts, even if someone is tempted to call me antisemitic. I don’t have anything against jews in general and I don’t like to discriminate. But those at the top surely practice discrimination and that shows on statistics and facts. That discrimination is practiced in academia everywhere. I have friends jews and they agree that some of those from the top are hypocrites. If they are really for diversity and against discrimination like they claim, then they should not occupy more than 2% of the top positions. Many times they nominate a minority person as a front and they still control that position.

        Like you said, the WASPs lost power long time ago (decades ago). The beginning of the end was 1913. Ekspat speaks from his own imagination about WASPs power. My children and I were discriminated everywhere for being whites – in employment and prestigious university applications. That is why I had to make my own company (sick and tired of liberal politics associated with employment) and my son had to go to a private medical school. Looking back, it was a blessing in disguise. However, going through those times it was not fair at all.

      • These how much is paid in and received back comparisons are simple minded. The devil is in the details and the effect of multiple orders are almost never a part of the equation. For example, how much are California state policies costing residents of other states? Things such as crime laws which allow those who should be locked up get out early can go commit crimes in other states and CA emissions regulations which drive up the cost of vehicles sold in other states immediately come to mind. It’s nearly impossible to calculate the true balance of payments.

  • I don’t necessarily buy the spin, but who cares? Really? As a person who owned in California, sold, and moved out of state, part of my rationale for leaving was prudent awareness that things don’t stay ‘golden’ (pardon the pun) forever! Everyone makes choices. Mine was to listen to my gut, pocket a ridiculous windfall, and get out! That cash has provided infinitely more flexibility! It is inevitable that something will trigger a pullback in California’s pricey real estate, and homes can quickly go from ‘gold mine’ to ‘boat anchor’! Of course, this can happen with any asset class, but I am one-click away from unloading stocks, unlike a more involved process for real estate!

  • In the Bay Area, this hasn’t really hit people yet. House prices can only go up here. Of course, trump tax bill will lead to rising prices because people are staying put and foreigners don’t have mortgages and blue purple people are cute! Especially the last reason of course.

    Bahaha…can’t wait for the stock market to crash, SALT to go away and tech funding to disappear. 1.7 million for a 1200 square foot crapshack in a good school district…of course you can buy that with your 50% off RSUs and your 130k salary.

  • This is a great move and a one-two punch, hammers frothy RE prices AND poorly run states – which just happen to be run by libs. So much of their budgets are dependent on ponzi economic schemes and they’ve run up absurd tabs to pay (off) govt pensions that are completely unsustainable. A side benefit is the producers will leave for greener pastures and along with them jobs and prosperity will be more distributed throughout the country.

  • Thank you Rent Control!

    • Rent control really is the key here… because any additional disposal income that renters get is going straight to rent. Huge boon for landlords here all around. Landlords get to continue to deduct interest while competing renters for new homes won’t be able to…. Also landlords benefit from the resulting inflated rents. Huge win for landlords, unless you have rent control.

      I really can’t stress this enough… landlords get to continue to deduct mortgage interest. Plus rents go up…. Home-ownership rate will continue to go down.

      Let the good times roll.

      • Yawn. We have heard for the last 4 years rents are going up. My rent has not increased a dime. Keep dreaming.

      • Millennial is of the ME generation.

        I have received double digit % pay increases for five year now.. By your logic everyone has received those pay increases.

        Rent hasn’t increased in SoCal since 2012???? You must live in a fantasy land where you can buy a car for the same price as 2012 (used or new) and your health care cost the same as 2012.

      • bawaahahahaha double digit % salary increases? Yeah, yeah sure, keep dreaming. Salaries have not been increasing for most Americans….. in decades!

        http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/

        It’s a bit pathetic that you have to make up lies in order to push your agenda. Luckily, most people see right through your BS.

      • -Why are you denying something that is an empirical fact?

        -Visit Craigslist to see that a one bedroom now goes for $2000.

  • As a fully qualified 20% buyer who has resisted the urge to drink the cool aid the last 3 years and at times questioned and regretted my stance…I hope this awful tax plan causes something…anything to help correct the prices in SoCal. I wonder if the wildfires will do anything as well.

    • I am in the exact same position. Live in a nice rea in LA. Fully qualified. 20% + downpayment in the bank. Seriously house shopped for over a year and got more and more discouraged before making a firm decision this fall to stay put in my admiitedly pricey rental for a year or so and wait for a correction. Really hope this is the beginning of that.

      • thenumbersneverlie

        Be patient. It may seem like the worm will never turn but it will, and when it does you’ll both be in a position to pounce. It is so laughable that everyone thinks this time is different – it’s not. Hang in there.

      • Same here. 20% saved. Not willing to buy into a bubble market and be left holding the bag when the market collapses (which it will). I am lucky – I lease a nice house in a great area and my landlord increases rent only 3% every year. I’m staying put. Cheap rent 🙂

  • Bay Area Realtor

    I live in Menlo Park, CA and have been here my entire life. As a full time Realtor since 2003, I’ve seen the ups and downs of the market. Personally, we purchased multiple properties in 2009,2010, 2011 and 2012. We have sold 2 of our duplexes in the past 6 months. There is no disputing (in my view) that we are in a massive asset bubble. I preach this to clients of mine who approach me with the desire to purchase. This new tax plan will not effect us, personally I want prices and expect them to come back to earth. I’m estimating a correction of 30%-35% in the next 12-18 months.

    • You are the second realtor who predicts a 30-35% reduction in prices within just a week.
      How quickly things can change! Love it.

    • The tax plan is unlikely to cause a crash. Going forward it is likely to slow the rate of appreciation and halt the insane mcmansion projects.

    • I hope BA Realtor is correct about a 30-35% decline. The top of the real estate market will probably come in the spring of 2018, but the decline will probably not start until late 2018 so the bottom will probably not come before 2020. Trump’s chances for re-election don’t look good.

      • hey Gary, for this tax plan which will result in lower CA house prices I will thank Trump….for lower prices the moron deserves the votes!

    • I appreciate you sharing your experience and view in the peninsula, since I live out here too and patiently waiting 🙂

  • I think it will impact LA, OC and San Diego which is good. This is why I supported Romney over Obama. Romney too wanted to reduce the mortgage deduction but lost the election. Think if Romney was elected OC housing would have been about 150,000 dollars cheaper and LA about 100,000

    • I don’t think that Romney would have been any different than Obama. They were both puppets of the same globalist interests of Trilateral Commission and CFR. One was the puppet on the left hand and one on the right hand. Same like the Bushes (Jeb and George) Bernie and Clintons.

      With Trump the situation is far more complex. There are still lots of players and the outcome still hard to detect at this point. I reserve my right to assess him at the end of his presidency. He is led to some extent but he also fights back when he is pushed. He is unpredictable so I can’t assess at this point the outcome of this dynamic and nobody can. One thing is for sure – he is not a pushed over.

      • I kind of agree with you on the unpredictability of trump in the beginning I thought it was just a rehash of bush and Goldman people but lots of his decisions have gone against standard establishment neocon or neoliberals.

        He certainly is unpredictable and will make his own decision

  • This legislation will not affect existing housing in California.There is a massive shortage because of insane regulation and fees to build new housing.

  • If everyone is under the assumption housing will tank with this plan what if in a hypothetical situation you have no one buying and selling. Everyone that bought property has the intent to live in it for a while. Is that a justification for housing to be worth less or to make it worth less? Why would a speculator try to lower the value if everyone who bought sees no need to sell and buyers are not needing a new place?

  • Make America Great Again

  • California will be alright, so what if we have to pay a few dollars more in taxes, not everyone is overextended.
    I recently did another road trip across Flyover country, nothing wrong with living there, especially if you have an average education, and average skill set, and want an average job where you ONLY have to work 40 hours a week to afford a nice house in a good school district. If this is what you want, go for it, it’s waiting for you.
    However, if you are ambitious, if you are at the top of your game, if you want to compete with equally ambitious folks, if you strive for success, if you want to reach for the golden ring, then you need to be in a world class city. The world’s best, brightest, and most successful people are drawn to these cities, if you are one of them, you want to be here also.
    The weather has nothing to do with this, NYC and London have crappy weather, and are still world class cities.

  • Apparently you can deduct 10k of property tax, at the one percent tax rate, that is a million dollar home, to go with the related mortgage interest deduction.
    Landlords get to deduct unlimited amounts.

    Don’t forget the AMT adjustment.

    Don’t mind paying more federal income tax, small price compared to the big increase in my stock holdings.

  • Perfect Weather

    But the weather is great!

    “- An unrelenting wildfire fanned by hot, dry Santa Ana winds threatened more than 12,000 homes in and around Ventura, California, on Wednesday, forcing thousands of people to race for safety.”

    https://www.reuters.com/article/us-usa-wildfires/unrelenting-california-wildfire-threatens-thousands-of-homes-idUSKBN1E011H

    • The weather in CA is so good that Murdoch lost to flames his $28 mil. mansion 5 miles from the ocean! Very good, indeed!!!…

      • no, he just loss some small utility buildings, not the main 7,500 sf house. 16 acre property with a number of buildings, it is an old vineyard operation. Murdoch released a statement Wednesday saying television footage showed there may be damage to some buildings in the upper vineyard area, but the house and the winery appear to be intact.

      • Seen it all before Bob

        If you can afford to surround your house with acres of well irrigated vineyards, your house is probably OK.

      • John, the news changed after I posted. I did not make it up. When you posted I read the news and what you say now is correct.

        Still, which house burned is irrelevant. The total damage is in billions. It was/is a bad fire.

    • son of a landlord

      Tonight, about 8:30 p.m., it was 70 degrees in Santa Monica. I suppose the Santa Ana winds, and the nearby fires, had something to do with the heat. I could even smell the fires.

      Nothing says Christmas like a hot December night.

  • Trickle-Down Theory Existed by 1896

    Perhaps, the most famous speech in American political history was delivered by William Jennings Bryan on July 9, 1896, at the Democratic National Convention in Chicago. In part, he said:

    “There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.”

    This is an example of why one should study history. There is nothing new under the sun–including the Trickle-Down Theory. It has never worked, and it will not work this time either

    • Seen it all before Bob

      Exactly! Why do Americans believe that giving corporations more money with result in higher wages and more hiring. The same corporations who have extra money during the last decade spent it on stock buybacks to raise thee price of their stock and to raise CEO compensation. Flyover argues that CEOs who follow this obvious plan are worth 1000X the median employee. Hey, I could do that. Make me CEO and pay me 1000X more. I don’t have enough cronies to support me yet.

      • Sorry Bob! I can’t make you a CEO. You either make yourself a CEO, of your own company, or sell yourself to the board of one companies looking for a CEO. There are companies specialized in head hunting for the best CEO they can afford. It is not enough to be good but you have to know how to network and sell yourself.

        I think that those on the board know how to buy stocks. They don’t have to hire a CEO for that. They are looking for a little bit more than that. Since I know the demands for a job like that and I don’t have the stamina and patience for a job like that, I prefer to be the CEO of my own small company (LLC). Since I know what the CEO job of a large company means, I don’t envy those people. That stress level does not appeal to me at all.

      • Seen it all before Bob

        Ha! I should have said my network of ultra-wealthy cronies is not good enough to get me hired as a CEO yet. It is purely crony capitalism to make 1000X your median employee. This did not happen when America was Great.

        I could start a company and if it is successful could theoretically pay myself 1000X my median employee. The great capitalists who cared like Henry Ford and all of the CEOs when America was great, did not do this.

        I don’t see Trump trying to make America Great Again.

      • Seen it all before Bob,

        I told you many times and you refuse to believe that Ford did not raised wages because of the goodness of his heart. That is a well established myth with the left. Ford was first and foremost a business man. He never mixed business with philanthropy. He did philanthropy with some of his profits.

        Read more about him. He raised the wages because he was forced by the market like any CEO. If you would care about middle class, you would support the politicians who are against globalism and immigration. Only then you can have the workers again in the driver seat. Come on, is common sense. I am sure you can understand something as basic as supply and demand from ECON 101. Less workers, means higher wages. Harder for companies to move because of higher tariffs for bringing back their goods, means higher production here.

        Trump was right about curbing immigration by enforcing the laws already passed by democrats and right about tariffs and to scrap NAFTA and a slew of other “free” trade agreements. Free markets do not need “free” trade agreements, they need government out of the way. Crony capitalism need “free” trade agreements like air. It dies without them. “Free” trade is code word for government to pick winners and losers and is typical of a socialist country. If Trump is going to do that or not remain to be seen. As much as you hate him, at least give him credit for what he is saying even if it is anathema to a liberal.

    • The face of US corporations is not the stock exchange. The liberals would have you believe corporations are the fortune 500 but nothing could be further from the truth. There are almost 30 million small business but only 18k have over 500 employees. Most corporations have less than 20 employees and those are the entities Trump is targeting with the tax plan. He is attempting to encourage entrepreneurship and an increase in the total number of businesses which has been in decline since the 80s.

  • Trickle-Down Theory Existed by 1896

    Perhaps, the most famous speech in American political history was delivered by William Jennings Bryan on July 9, 1896, at the Democratic National Convention in Chicago. In part, he said:

    “There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.”

    This is an example of why one should study history. There is nothing new under the sun–including the Trickle-Down Theory.

  • The Personal Exemption in the Senate’s version is eliminated, which is scheduled to be $4150.00 in 2018. The Standard Deduction is $13000.00 filing jointly, $9550.00 head of household, and $6500.00 filing single. A family of 3 or more will have less deductions, under this bill, even if they have not itemized in the past.

  • Calif. regulations already add $100,000 to the cost of new housing. The insane property values are directly connected to California’s Democrat-Marxists policies on numerous overlapping cost impacts.
    1. Open borders and 25 billion spent on illegals medical, housing, education, LAW ENFORCEMENT.
    2. extreme confiscatory taxation due to over spending and over promise of Retirements which are never going to be paid as promised, (Democrat payoffs to unions)
    3. unsound BONDS requiring the public to pay back in more taxes than the original cost of borrowing. A raise in interest rates will be catastrophic.

  • I like this part of the tax plan. The corporate give away is a joke as trickle down economics has been proven to be bs (I have lived through the 80s). I think the deductions were a joke and to reward higher home prices was a bigger joke. As soon as this passes I cant wait to see the panic in every bay area home owner bragging about their huge net worth (in home value of course). This will also prevent home flippers and the home bailers who sell and relocate to cheaper parts of the state. Its been a joke for a while and I expect to see prices dip everywere.

    • “I like this part of the tax plan. The corporate give away is a joke as trickle down economics has been proven to be bs (I have lived through the 80s).”

      You must have been asleep if you don’t think the 80s was anything other than an economic boom.

      There is no tax giveaway. This is typical socialist thinking, where 100% of the money is the govt’s and they “give it away” back to those who earn it. You are a disgrace.

  • I think the renters will be disappointed. The requirement of 5 years of principal residence to get the 500K cap gains give will result in much lower inventory. This will push prices even higher with a big drop in sales. Basic supply and demand analysis.

    I also think NAR is worried about the big drop in sales. Less homes being sold is a real problem for them. So, they are trying too scare the public with stories telling them their home price will drop. Not true. Don’t fall for that. Prices will rise from reduced inventory. Watch

    • lol….yeah, we will watch. If the NAR predicts 10% price drops the reality is it will be more like 20-30%. add interest rate hikes and the upcoming recession and you have a crash! Cant wait!

      • “…it will be more like 20-30%.”

        Ha! For the past few years you’ve been predicting a 50-70% drop.
        Which is it?

      • yeah, I am happy to clarify. Prices will collapse by 50-70% from today’s prices when the crash happens. We will see a dramatic pull back in California coming from the tax plan alone. Add interest hikes and the upcoming recession and you have your crash.

      • Millennial so when exactly do we see the first 20-30% drop, after all the tax plan was already approved and announced.

        Keep in mind home affordability for loans does not include any tax deduction.

        There has never been a decrease in house prices in CA without a recession.

    • Good point on the capital gains angle and also for anybody looking to sell and then buy and stay in California they will lose their mortgage interest deduction because they were grandfathered in so that will cause people to want to sell less and create more of a supply problem in my view (assuming loan is greater than 500k)

      • Seen it all before Bob

        My opinion is that is you buy a house at any time. High or low. If you stay in the house for at least 10 years you will be OK. For so many reasons.

  • I never really understood the resilience of the Mortgage Interest Deduction (MID). When a expense becomes a deduction, that expense is basically being subsidized by the federal government. So why would the federal government subsidize mortgages from private banks? Using this line of thinking it makes more sense to subsidize the states under the SALT deductions than subsidize private banks under the MID. That being said I have taken advantage of both the MID and SALT deductions in the past, but if one had to be eliminated or reduced it’s an easy choice of the MID.

    • The MID may not make sense to you but it evens the playing field when competing to buy homes, Investors can still claim every deduction under the sun as a business expense–including MID. If individuals can’t claim any of those expenses, investors will be able to outbid individuals and eventually all homes will be owned by the investor class.

      Also, if corporations can deduct state income taxes, why shouldn’t individuals also be able to deduct them? What’s the real difference between an individual’s living expense and a business expense? Why should student loan interest be deductible and home loan interest not be deductible? The whole Republican tax plan is NUTS!

      • Poor Gary doesn’t understand the difference between a for profit corporation and an individual. LOL

      • Mr. Landlord, most real estate investors are not corporations. They are just average Joe’s who own a few rentals. Half my neighbors own rentals–usually just one.

      • Pretty sure if this exact tax plan was passed under Obama you would be in full support! Ranting that Repubs who do not want to support it; want grandma to eat cat food.

        C’mon……be honest!!!

  • You GOP dopes, please keep leaving CA. Jerry wants you out. Only the wise are welcome.

    • “Only the wise are welcome.”

      Are those leaving Mexico or So. America for CA wise?!!…Then you’ll fill CA with wise people and the taxpayers “dopes” are leaving in droves for greener pastures. In ten years the CA population increased 10 millions and Sacramento is showing 150,000 more tax payers. Very “wise” dynamic. Yes, there will be lots of taxpayers left to pay for those huge pensions from government unions. Good luck with that! You’ll need it.

  • I notice that the income from rentals will now be taxed at a lower rate (more like dividend income). That’s a huge bone for the commercial real estate industry. I’d guess then that would push more money into the purchasing of rentals, since the returns will be even higher, maybe offsetting the decline the Doctor is predicting? Either way, this surely is the gold age of the landlord.

    • Yep, and don’t forget landlords still get to deduct interest and any disposable income increase for renters leads to increased rent.

      This is a HUGE boon for landlords.

      • Everybody knows that renter will be the big winners from these tax plan. More money to save and house prices will drop significantly in California.

      • Nobody in their right mind thinks either:

        A. Rents have not increased dramatically since 2012

        B. Renters have been huge winners the past 5 years

        And then there is Millenial

  • Of course Steven Terner Mnuchin is waiting for the tax plan to go through and then he and his allies will make sure regulations disappear. Wall Street will start up the “make believe we have money” machine again and the market will soar. Wall Street, financial companies, banks, and others will hand out loans like candy, securitize them as soon as they can, and use the money to make more loans that people can’t afford.

    When the market crashes next time, it will likely be a total collapse.

  • First_Time_Home_Buyer

    Its hilarious and very entertaining to see how worried the housing cheerleaders are because of Trumps tax plan!!! I remember how many Trump fans were telling us how housing will go up due to Trump……and here comes his tax plan which will crush house prices in CA! Too funny!
    My wife and I will wait until this ship sinks. Make this housing market great again!

  • Securitized rent will probably have a boom in the coming years.

  • I had heard from someone that the change from 2 of 5 to 5 of 8 (primary res. tax exemption) has some loophole for those that need to relocate fora job or medical reasons etc.

    IE. Someone can capture the exemption ($250k single, $500k married as before) if they aren’t living in the primary for the full 5 years but move for the above reasons.

    Does anyone know if this is true or not? I haven’t been able to find info. on it.

    I 100% agree with posters above that it will make inventory even tighter in CA and with less Greenfield and brownfield to build on I think it will have the opposite effect and drive prices here. Just my two cents.

    • You heard right and you’re looking for IRS Publication 523.

      It’s a partial exclusion that gives you credit for whatever percentage of the required time you do have in the house.

      The new job also has to be 50 or more miles away.

      Though I guess it’s possible that the extension of the exclusion will also effect the partial exclusions.

      I’ve already got a job-related out-of-state move planned for next year so I’m hoping this exclusion still applies. 3 years in the house and potentially around $75k in gains if optimistic valuations hold.

      • Thanks Sam. I hope they either grandfather us folks in or that exclusion still applies. We don’t have any plans of moving but it was always nice having that flexibility if the desire arises.

  • All the doom and gloom pundits are out in full force. As was said before, the proposed tax plan’s effect on CA RE will be a nothing burger. It actually may cut limited supply even further. The only things that will tank CA RE is either a massive job loss recession or a natural disaster of unprecedented proportions.

    I’m still blown away that joe middle class thinks they will soon get bargains on decent CA RE. The rich may say otherwise!

  • I don’t see how this won’t ultimately result in more upward pressure on low to mid ranged priced housing. It will incentive downsizing by the weather and staying under a certain price point for other buyers. And obviously people will be selling less with a 5 year limit on a tax exempt sale now.

    This is about to have the opposite affect that Millennial is praying for IMO. Even tighter inventory coming, higher prices, and an intensification of the market problems we are having right now. In summary, I consider his tax bill to be a total disaster.

    • I agree. I think prices will rise from the big drop in inventory, and many fewer homes will be sold. NAR makes their money from the number of sales, so realtors will panic.

      • Agreed. Sorry for all my typos above, I type too fast and don’t proof read it. I’m not as dumb as I appear from my messages. Dumb, but not that dumb.

        I think it will further exacerbate this housing shortage and push prices in the old bubbly direction. Millennial I would not celebrate yet, I don’t think this tax bill is going to do what you want it to. You may have to put your recently purchased MAGA hat away now.

  • How is it that tax payers in big tax states like California get to deduct state taxes from their Federal returns? What is the justification for this? Essentially the rest of the country is subsidizing states with high taxes. Again, how is this fair or justified?

    • Not true, California gets around 50 cents from the Federal Government for every $1 it pays to the Federal Government in taxes. By contrast South Carolina gets $8 for every $1 it pays in taxes. How is that fair?
      Here is a chart of who are the biggest leaches:

      https://www.theatlantic.com/business/archive/2014/05/which-states-are-givers-and-which-are-takers/361668/

      • California also releases felons early who can easily go on to commit crimes in the rest of the country, thereby exerting a cost burden on other states. How about that for what’s fair?

        When decisions made in Sacramento no longer have knock on effects for other states – especially those which are neighboring – then you can start whining about what’s fair. Until then, watch out for fires.

  • LOL. The NAR’s stated mission is to help families buy homes. So wouldn’t a 10% price drop, you know, help families buy homes?

    • I don’t think they are actually concerned about a price drop or a price increase for that matter.

      All they care about is transaction volumes.

      Transaction volumes will go down. There will be less inventory and less transaction and more landlord owned real estate.

      • I concur. Less inventory for sure and lower transaction volume. Bubble continues.

      • True – a professional RE agent can do well in a buyers market or sellers market. During the last RE market collapse, California lost tons of RE agents, probably most of the ones who were just ‘weekend warriors’ (the ones for whom it was a part time job on the weekends). Brokers who are excellent at getting listings always do well.

      • Yep..

        A 1% price increase or reduction only impacts realtor commissions by about 0.025%

        A 1% change in volume changes commissions by the full 1%

        This is why you can’t trust realtors… well at least 95-98% of realtors

  • Is there some kind of genetic defect that causes Californians to forget how much their economy is based on bubbles? Remember how bad it was when the last housing bubble popped? Those days are going to return soon enough, tax bill or not. When it does, the people who saved their money will be in the drivers seat. If you can read this site every day and still believe that housing is an “investment,” you deserve what happens to you.

  • California subsidizes the rest of the nation – not the other way around. No state gives more money to the Federal Government than California – $406 billion in 2015 (latest figures I can find), compared to second place Texas at $280 billion. California gets around 50 cents for each dollar they pay to the Federal Government. By contrast South Carolina gets almost $8 for every $1 they pay to the Federal Government. California is not a leech by any standards that are mathematically accurate in spite of what is stated in the first paragraph. California subsidizes the rest of the USA, not the other way around.

  • I agree with comments on this board that the tax law will increase the number of renters relative to homeowners. All those renters had better invest well or they will never retire.

    • Seen it all before Bob

      Exactly, buy a house at a peak or low, and hold for at least 10 years, and you will have a fixed expense both in mortgage and property taxes in CA. Buying at a low is preferable but the key is to hold for at least 10 years. At that point you will have the option to sell at a profit, or stay with a fixed housing expense until you are old or dead.

      • Seen it all before Bob

        My mother is in a house she bought in 1976 at a local peak (The midwest relatives said mom and dad were crazy at the time.).

        Today, Mom has paid off the mortgage and has a $2000/year, yes per year, housing expense.

        True, she still has 1980’s flooring and kitchen, but it is home to her.

        Her neighbor who is renting, is paying $3500/month. Yes, per month.

        The moral of the story is buy a house now and stay. You can stay forever in CA.

      • Seen it all before Bob

        As an add-on, that 2000/year is 1300 in Prop 13 property taxes and 600 in insurance.

        Her midwest neighbors who did the same in WI without Prop 13 are now paying much more per year.

        Prop 13 is a firiend d to anyone who buys a house.

  • son of a landlord

    On a previous thread, I posted a beautiful Brentwood house on Gretna Green, which was offered for $2,795,000 (along with plans & permits for a new house).

    A nearly $1.1 million markup from its previous sale in 2013.

    Several people confidently predicted that the house would sell at that price, or close to.

    NOT!

    The house failed to sell: https://www.redfin.com/CA/Los-Angeles/853-S-Gretna-Green-Way-90049/home/6760373

    Maybe there is a limit to what house humpers are willing to pay.

    • Here is one that took some time and a few price cuts … in Manhattan Beach. Several years ago, this would have been snapped up in a week.

      https://www.redfin.com/CA/Manhattan-Beach/229-8th-St-90266/home/6711791

    • Looks like the house was taken off the market. That’s not a bad move on the seller’s part. Nobody in their right mind would want to jump through all the hoops of buying/selling a home during the holidays…this is why sales volume takes a nosedive from Nov-Feb. List the house in March or April is a much better proposition.

      They may not get their exact price, but I bet they will get close to it!

  • Even though renters will see an increase in the standard deduction, everyone is losing the $4,100(2017) personal exemption deduction, so the average family who uses the standard deduction could see taxable income rise as a result.

  • States with no personal income taxes (Texas, Florida for example) have very high property tax rates in the 2.5-3% range. As a result, they may be more affected by the limit on property tax deductions to $10,000 than the high tax state like California.

  • Regarding housing values in California, mortgage loans are based on your adjusted gross income, not taxable income or income tax deductions for mortgage interest or property taxes. Factors like interest rates, housing supply, and location have a larger effect on price stability.

  • Wasn’t there just an article not long ago on this blog about how Los Angeles is now predominantly a rental urban area? And, hasn’t there been ongoing articles about how California’s coastal cites are unaffordable to most? So, who’s complaining about a potential decline in housing prices? Is it those who took a big risk and bought at these insane prices? Or, is it the little retiree who didn’t have enough sense to capitalize on that equity while they had a chance? Or is it the landlord afraid if housing prices retreat, he will also have to lower the rent? I’ll bet all the ‘under-the-table’ low wage help who cleans you home, washes your clothes, does your gardening, or does all those repairs around you property would love a little break in their rent! Californian’s appear to be hypocritical! A realistic downward adjustment in real estate would be a good thing for those just hanging on, might put a few dollars more in the pocketbooks of those just hanging on! Oh, but what happened to your bleeding hearts …

  • Just returned after mandatory evacuation. It’s absolutely nightmarish here in SD county. Never experienced anything like this in my life. Could see a horizon of orange flames, power and street lights out, roadblocks, closed freeways, animals running free, it’s almost apocalyptic. My home is fine but others not far are burned to the ground. Many people still can’t return to their homes. Firefighters are doing a great job protecting homes and getting this huge fire under control.

  • Its much more fun and way more profitable to buy Cryptocurrency than overpriced houses.
    Invest in the IOTA….check it out. It’s gonna skyrocket.

  • ProAmericaAntiRepublican

    Republicans are so clueless. They are sociopaths. Hillary was absolutely correct to call these idiots deplorables. What make America great again is to vote for these pro-Putin Trump useless Republicans out of office. They are wasting taxpayers money. That traitor Flynn should not be collecting retirement pay. He belongs in prison just like Trump and his crime family.

  • ProAmericaAntiRepublican

    These pro life freaks only care about the fetus. Once the child is out, they can careless. Conservatives are control freaks. They claim that they are for smaller government. In reality, they want to control our private matters from sexuality to privacy.

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