10% Correction in Bay Area market after Tax Reform?

[Albert Xavier]

Hi Folks,

I cannot understand why more people are not talking about this. 

Renter:

Imagine I am a renter in Bay Area and I wan't to buy an average $1M home here in Bay Area and want to put down a decent 25%. My loan would be $750K. At 3.75% interest rate my mortgage payment is $3500. Total Mortgage interest paid is $27K and Property Taxes are about $12K.  Now if I am married, under the new tax plan, I am already getting $24K in standard deduction and I am already paying $10K in state income taxes (max SALT deduction of $10K), I have almost 0 Tax incentive to buy a home. 

Home Owner:

Now, Imagine I am a married home owner with the same above $1M house with $750K Mortgage. I was deducting my $27K in interest + $8K personal exemptions + $12K in property taxes + $10K in State income taxes = $57 in deductions. With the new law I would just do $27K interest + $10K = $37K in deductions. That's a loss of $20K in deductions. That translates to around $6K higher tax and roughly $500 per month. So my mortgage went up from around $3500 to about $4000. If I had a HELOC, I would further lose deductions. Combined with peeps for have expiring 5 Years Arms, would come under tremendous pressure to sell with higher interest rates next year.

Wouldn't this cause a correction in home prices, if that market was rational??? What am I missing here?