GOP Tax Proposal Would Wallop New Bay Area Homeowners
It could get worse, experts say, if a proposed Republican tax plan — slashing the popular mortgage interest deduction and limiting state and local tax write-offs — makes it into law.
The overheated, high-priced housing market already suffers from a lack of available homes, growing demand and limited options for renters. The median home price in the nine-county region in September was $768,000, a jump of 15 percent from last year.
The Republican plan released Thursday would cut the mortgage interest deduction on new loans from $1 million to $500,000. It would also cap state and local property tax deductions at $10,000, lower than what many Bay Area residents pay annually.
“It’ll have the worst impact on the Bay Area of any place in the country, because housing prices are so high,” said Nela Richardson, chief economist for real estate brokerage Redfin.
Overall, she said, the tax plan pinches upper-middle class families. “There’s no good news for the Bay Area,” she said.
Republicans say the overall tax proposal would benefit Americans by slashing taxes for individuals and businesses. The GOP hopes to have the plan to the president by Christmas.
Jeff Bell, Realtor and chair of the Silicon Valley Association of Realtors legislative action committee, said the tax plan could make a challenging market even harder for first-time home buyers. The association estimated that the cut in mortgage deductions would cost a Santa Clara County homeowner with an $800,000 mortgage on a $1 million home about $4,800 a year.
Existing mortgages are not affected. But Bell said the tax proposal would encourage homeowners to stay put, limiting the number of homes for sale in an already-tight market. That, in turn, could lead to more bidding wars for single-family homes, he said.
“It’s clearly going to have an impact on homeowners,” Bell said.
But recent mortgage data suggests that most Bay Area homebuyers are taking out loans less than $500,000, according to real estate tracking company Attom Data Solutions. Less than 30 percent of the mortgages and refinancings for homes and condominiums in Santa Clara County this year have topped $500,000. The median price of a single family home in Santa Clara County last month was $1.075 million.
In Alameda County, about 22 percent of mortgages and refinancing loans went for more than a half-million dollars this year.
The numbers reflect buyers, perhaps with higher incomes or hefty home equity, coming into the market with more cash for down payments.
Local builders associations declined to comment on the bill, saying they were still sifting through the details, but National Association of Home Builders CEO Jerry Howard said the proposal could throw the housing industry into a recession.
“What we’ve seen is that when house values start to go down, it spreads to the next market after that, and another market, and the next thing you know you have a housing recession,” Howard told CNBC.
California Democrats bashed the tax plan Thursday, arguing it would be a boon to corporations while raising taxes on some middle-class families because of the elimination of the state and local income tax deductions.
“Cutting the mortgage interest deduction cap is going to make already unaffordable housing in the Bay Area even less affordable, which is just what we don’t need,” said Rep. Zoe Lofgren, of San Jose. “Along with the increase in taxes on middle-class families, it’s really an outrage.”
House Minority Leader Nancy Pelosi told reporters the tax plan was a “shell game” on the American public. “If you’re the wealthiest one percent, Republicans will give you the sun, the moon and the stars.”
Gov. Jerry Brown wrote letters to California’s Republican members of Congress urging them to vote against the plan.
“The hurried tax proposal unveiled by Congress today transfers income from individuals and families to large and powerful corporate structures,” he said in a statement. “This is bad economic policy and bad for the American people.”
All 14 of the state’s Republican House members voted for an earlier budget bill laying the groundwork for the tax plan. But as of Thursday afternoon, only a handful of the delegation — who could cast the decisive votes on the plan — had publicly commented on it.