Jeffrey Otteau is one of the most astute analysts of the New Jersey housing market. I subscribe to his service and have been raving about him for years. He has always correctly analyzed the real estate market. Additionally he is often way ahead of everyone else. I like the fact that he is completely independent – no one owns him and he is not associated with anyone.
Taxes impact real estate; any change is significant. Because of this I went to a seminar Jeff was holding on how the the new tax law affects real estate. It was very interesting and confirmed a lot of what I thought.
By the way, anyone can go to one of his seminars. You don’t have to be a real estate professional so if you’d like to know about this or how to subscribe to his service, just call or text me at 201-741-8490.
The overall theme of what Jeff said is that the new tax code is a better system than anything we’ve had for decades. Because it’s a much more fair tax code, he felt it was better and because most people will benefit from it. As a result, most Americans will have more cash to spend which will do 2 things – spur the economy forward and help real estate.
This does not sound like anything we’ve been hearing does it? He explained that, and I quote, “because the White House is so inept” they didn’t “get in front of it and properly explain this thing to the public”. As a result, a vacuum of information developed into which poured the media and the opposition spewing forth misinformation. He went on to say that once people understand it, they’ll love the new tax laws. However, there will be exceptions.
High Tax States
High tax States in the Northeast and Northwest won’t be so happy because property tax deductions are limited to $10,000. The reason most Americans aren’t affected is because outside of these 2 areas no one pays anything close to $10,000 in property taxes. He said for the majority of people in the 2 high tax areas, it won’t really have as great an effect as we have been led to believe. This is because half of us don’t have taxes over $10,000 and for the other half, most will absorb it. The toughest group are the $950,000 – 1.250 million buyers. Once you get to higher figures those folks can handle the difference and have other tax shelters anyway.
Mortgage Interest Rate Deduction
The other big change is that the MID or mortgage interest rate deduction is now limited to a mortgage up to $750,000 for a couple. Before it was limited to $1 million. Because this typically affects home purchases of $1 million or more, it’s not most people. Higher earners will find that their income tax bill is pretty much staying the same. So any fears they had of huge losses on that score are not valid. Most high earners pay off their mortgages quickly or purchase in cash so he felt this is not as significant an issue as has been reported.
The Bottom Line
Because people don’t understand the new tax law, the market will have a slow start this year. He said that after April 15th people will understand it. As a result, we will have a later but much busier spring and summer market so prices won’t go up much if at all for the first 3-4 months of this year. Price appreciation will kick in, however, so 2018 will see a 3.5% appreciation for real estate. Additionally he added that rates are on the way up and should be at 5% by year’s end.
So according to Jeff this is a more fair system that will help both the economy and the real estate market. Homes bought prior to this law are not affected because they are grandfathered. The only question, he adds, is how to pay for it and we’ll see what happens on this in the future.