US Tax Reform Proposals Impact on Crested Butte
I have had a number of clients ask me about US Tax Reform Proposals Impact on Crested Butte Real Estate. This is a very good question – and one I am not sure I am qualified to answer since I am not an economist, a tax professional, an attorney, and certainly I don’t have a crystal ball to predict the future. Let me give you some of my thoughts…
NAR Does Not Like the US Tax Reform Proposals
My email Inbox is full of emails from the lobbying arm of the National Association of REALTORS® (NAR). I have form letters to send to my representatives in the Senate and in Congress. Of course NAR does not want anything to negatively affect the ability for the middle class to use a real estate agent to purchase a home, or purchase a bigger home… This makes sense and I am sure at some level their lobbying efforts will make an impact. Tax Reform – right or wrong, good or bad, agree or disagree I will look at all of this through the lens of the Crested Butte Real Estate market.
What About The Crested Butte Real Estate Market?
The challenge is understanding what is in the final Tax Reform Law – and what is Not. There are going to be many changes, and the horse trading will continue in Washington so it is hard to say what the impact of something that has not been passed into law will be. Below are my general thoughts on this tax reform as it relates to the Crested Butte Real Estate Market.
Will home Prices Drop 10% in Crested Butte?
The excerpt from the NAR article below suggests there could be a negative effect on home values as great as 10% as a result of the Tax Reform. The Second Homeowner Buyer in Crested Butte drives the market. In general there demographic of the second homeowner buyer in Crested Butte is affluent and upper middle class and upper class.
The Crested Butte Real Estate Market is Driven by the Second Homeowner Buyer.
If the bad stuff in the US Tax Reform affects the Crested Butte Second Homeowner Buyer negatively – then this will have a “relative” negative effect on the Crested Butte Real Estate Market. Relative is the key word here. If the CrestedSecond Homeowner Buyer sees double digit increase in their stock market investment portfolio, and their part of the national economy is prospering – then I don’t think the fact that they don’t get to deduct the interest expense on their Second Home mortgage is going to deter them from buying a second home in Crested Butte (and 42% of home transactions YTD are cash).
If demand is up, then prices go up (law of supply and demand apply). We have a relatively steady inventory on the supply side – albeit the majority of the inventory price points have been and continue to rise and quality homes at the “lower end” of our market are in short supply.
There may be a negative affect on “locals” purchase of homes as prices rise, and costs to build start at $350 per sq. ft. Some areas like CB South where there are high percentages of permanent residents may be affected – but will this be offset by the rising demand? And we have seen record lot purchases YTD 2017 so many buyers are considering buying and building and this feeds our local economy.
Crested Butte may fare better than other markets. So assume there are terrible things in this Tax Reform Bill and it negatively affects a buyer from buying a second home in a ski town in Colorado. Well then maybe there will be buyers who decide they no longer can afford the 2X price in Telluride compared to Crested Butte, or the 4X price in Vail compared to Crested Butte, or the 6X price in Aspen compared to Crested Butte… maybe the relative value of Crested Butte will be more appealing? Hmmmm….
My gut – the Tax Reform will not negatively affect the Crested Butte Real Estate Market.
Below is an excerpt from an article in REALTOR® Magazine – The official magazine of the National Association of REALTORS®
Sorting Through the Tax Reform Proposals
DAILY REAL ESTATE NEWS | TUESDAY, NOVEMBER 28, 2017
Shortly before the Thanksgiving holiday, the National Association of REALTORS® hosted a Facebook Live event on the status of the tax reform proposals making their way through Congress.
Here are a few of the key takeaways from that Nov. 22 event:
- Although there are significant differences between the House and Senate tax reform bills, they are very similar in the way they affect homeowners and the tax incentives of homeownership.
- If the legislation becomes law, NAR’s outside research estimates that home values will drop 10 percent on average during the first few years.
- The residency requirement to exempt from tax the gain from selling a primary home will change from two of the past five years to five of the past eight.
- A decline in home values could cause millions of homeowners—especially recent buyers—to find themselves suddenly underwater with their mortgages, owing more than the home is worth.
- The increase in the national debt that stems from the tax cuts could cause interest rates to increase, exacerbating the negative aspects of the tax bill for current and prospective homeowners.
- 1031 like-kind exchanges for real property remain unchanged, which is good news for the commercial real estate sector.
- Interest on home equity loans will not be deductible for either new credit lines (House bill) or at all (Senate bill).
- Deductions for mortgage interest and property tax will not be limited for investment properties.
- The negative tax effects on the housing market could worsen over time because income and home value limits in the bills are not indexed for inflation.
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