The Glory Days for US High-End Real Estate Are Over

Wolf Richter with Jim Goddard on “This Week in Money“:

The “aspirational” asking prices in the super high-end housing market used to fly in the glory days of 2015, but they aren’t flying anymore. Craziness is slowly leaching out of that end of the market. What does this say about the overall housing market? And are the home-price numbers we get from the real estate industry inflated to promote ever higher home prices?

Under the new tax law, home buyers are losing some of the incentives to binge on debt-funded home purchases, but the magnitude of this change has not been fully appreciated just yet. Read… What Will the Tax Bill Do to the Housing Market?

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.




Share on FacebookTweet about this on TwitterShare on LinkedInShare on RedditPrint this pageEmail this to someone

  36 comments for “The Glory Days for US High-End Real Estate Are Over

  1. Ed
    Dec 26, 2017 at 1:49 am

    I want to know what the tax bill will do to charities. On the one hand, the very rich just got richer. On the other hand, many middle and upper middle class tax payers will switch away from itemized deductions.

    How does this play out? Less charity? Just a switch to charities that reflect the priorities of wealthier people (i.e. less to Churches)?

    Wondering if someone has thought this through.

    • Sergio
      Dec 26, 2017 at 4:47 am

      Church is a matter of ‘faith’. You pay tithing for heavenly blessings rather than tax benefits.

      • scott
        Dec 26, 2017 at 9:33 am

        :)

      • Ed
        Dec 31, 2017 at 8:54 pm

        @Sergio Funny. Also, there is some truth to what you say in that Church giving is probably a lot stickier than monies to save the baby seals or even the First Amendment.

        But it’s not completely sticky. I still wonder that there was no outcry. Maybe not enough time before the bill was passed for individual Pastors to be aware? Was it clear the train would stop for no one?

    • Lance Manly
      Dec 26, 2017 at 6:51 am

      >Wondering if someone has thought this through.

      At first glance dumping and extra 1.5 trillion in debt from a already heavily indebted country on to an economy that is basically running at capacity will just drive up inflation and interest rates (causing debt to accelerate). Given that I would go with “No” for an answer.

      • Pp
        Dec 26, 2017 at 11:59 am

        Ha ha! At capacity? With how many workers out of the workforce? Stop watching TV.

        • Lance Manly
          Dec 27, 2017 at 5:32 am

          Apparently you missed out on the effects of an aging population, surging prison population and staggering effects of the opioid epidemic.

    • Dec 26, 2017 at 11:12 am

      I don’t know lets ask Bill Gates.

    • YIH
      Dec 26, 2017 at 2:20 pm

      The charitable deduction has always been for the high-income. Two reasons:
      1. You gotta itemize, to many that’s too much complexity for too little benefit. It also bumps up the cost if you’re using a paid preparer.
      2. If you claim it, you gotta be ready to prove it. As in receipts. If Prez Trump dropped $50k on ”The save the kittens foundation” he (or more likely his staff accountant) already checked for it’s 501(c)3 status. And they’re more than happy to issue a formal receipt obviously. That bag of clothes you dropped off at Goodwill or that $20 you poked into the Salvation Army kettle? Probably no receipts. Also see reason #1.

  2. Frederick
    Dec 26, 2017 at 1:53 am

    I would think the ultra high end sector would be faring the best with all the wealth going to the .0001 percent but I also thought precious metals would do well under QE so what do I know?

  3. alex in san jose AKA digital Detroit
    Dec 26, 2017 at 2:47 am

    I’m not sure how this feeds into this but I was in Mountain View a couple of days ago and there are sure a lot of empty store fronts on Castro Street, their main street.

    Today I wandered around downtown San Jose and the same – more empty store fronts than I’ve ever seen.

    • Michael
      Dec 26, 2017 at 10:57 am

      Your description could apply to any city in the Bay Area and applies to retail and commercial real estate. I consider them a sign post to the real underlying economy.

      • Jon
        Dec 26, 2017 at 11:21 am

        US economy is primarily driven by consumer spending ( atleast 67% of economy ).
        If people are really suffering or are under fear, it’d show in the economy..

        I don’t see that happening… What I see is people lining up for $1000 iphone X.. although sales seems to be weaker in the eyes of analysts…

        Right now… people seem to be spending lot of money..

        • Observer
          Dec 26, 2017 at 2:34 pm

          Anecdotal. It’s Christmas.

        • Dec 26, 2017 at 8:45 pm

          Incomes are not increasing. And that is not anecdotal. And saving is not increasing much at all, too. So many tens of millions of people have left the workforce.

          But debt is certainly increasing. C.C. debt. Student Loan debt. Auto debt.

          So when you said this, “Right now… people seem to be spending lot of money..” – – we might find ourselves in agreement that they are SPENDING BORROWED MONEY.

          Ignoring for the moment that doing so is not sensible (buying stuff you surely don’t need with money you certainly don’t have) — well how sustainable is that ?

      • c smith
        Dec 26, 2017 at 2:16 pm

        For every retail site with a “Space For Lease” sign, there are 20 Fedex and UPS trucks running around the highways and byways. Haven’t you seen? Virtual retailing is the future (and the present)!

      • alex in san jose AKA digital Detroit
        Dec 26, 2017 at 7:25 pm

        Michael – there was a discussion on Reddit about this and it’s any city in the US … and then the internationals chimed in and it’s worldwide.

        Capitalism (cue picture of the fish being eaten by the bigger fish, being eaten by a yet bigger fish … here).

  4. Petunia
    Dec 26, 2017 at 8:58 am

    We have some family on Long Island, NY and already they are worried about the impact of the lower deduction for real estate taxes. They have never considered moving before but now they may have no choice. I can definitely see them heading for Florida.

    We estimate that their current real estate tax bill is in the 20K-25K range, in Florida it will probably be in the 5K-6K range.

    • Frederick
      Dec 26, 2017 at 9:41 am

      Live on Long Island and never considered moving? I was born there and lived there for 62 years and now that I’ve moved I realize how crazy I was all those years

    • Paulo
      Dec 26, 2017 at 10:18 am

      Do they have a mansion?

      Those taxes seem impossibly high. Even the Florida amt requires $500/month of after tax dollars to budget for it.

      Are the taxes so high because there are no State income taxes?

      Thanks Petunia

      • LessonIsNeverTry
        Dec 26, 2017 at 11:00 am

        I can’t speak to NY’s property tax, but I do know they have fairly high state income tax and some areas of the state, like NYC, have a hefty sales tax in addition. Save to say they will hit the SALT limit.

      • Frederick
        Dec 26, 2017 at 11:35 am

        My small cape on a quarter acre in Sag Harbor NY was 8K and a 4 BR on half an acre was 22K in 2008 Crazy

      • Lou Mannheim
        Dec 26, 2017 at 11:35 am

        Sadly that’s probably for a modest home. Check out Zillow or another RE site, the property tax rates in Nassau and western Suffolk counties are insane.

        • Frederick
          Dec 26, 2017 at 12:00 pm

          I wouldn’t call it modest Williamsburg reproduction Custom everything with a 20 by 40 gunite pool The school taxes are much less in the Hamptons because nobody with kids can afford to live there Most of the biggest homes are only occupied during the summer and they prop up the tax roles pretty nicely

      • Petunia
        Dec 26, 2017 at 1:59 pm

        They have a center hall colonial built in the 90’s on an acre with a pool. I think less than 2500sf. Good school district.

        • Petunia
          Dec 26, 2017 at 2:20 pm

          P.S. Paulo,

          NY state has an income tax, NYC has an income tax, commuters from out of the city pay a commuter tax, and every county has an income tax on top of the state tax. You really have to love NY to stay there.

    • TCG
      Dec 26, 2017 at 11:47 am

      At the 37% tax rate that is $9,250 in extra taxes a year for them from not being able to deduct their property taxes. At a lower rate like 24% it’s $6,000 a year extra. But wait, that 24% bracket maybe used to be 28% or maybe 33% under the old tax brackets ( http://www.businessinsider.com/tax-brackets-2018-trump-tax-plan-chart-2017-12 ). So maybe that $6,000 extra is not much extra at all if they’re paying 4% less on on a $100,000 portion of their income.

      The point is that it’s complicated, so I would do some actual tax estimations based on the plan before selling the house and moving. Other changes that might affect them are mortgage interest deduction if it’s an expensive house.

      Don’t get me wrong, I think this tax plan will be overall bad. I don’t appreciate it’s cynical attempts to increase deficits so that future retirees will have their Social Security benefits reduced/eliminated when they can no longer be paid (you know that is the long game plan for running bigger deficits for the repubs to shut down as much govt benefits as possible for everyone but their wealthy finance/big business friends). I also don’t appreciate the elimination of state tax deductions, real estate tax deductions or reduction of mortgage interest limits that target people in higher cost of living states more than other places.

      But in the long run, with changes in the tax brackets and other things, it’s more complicated to figure out than it seems and your friends might not be losing as much from elimination of that deduction as they think if other tax changes offset it somewhat.

      • Dec 26, 2017 at 8:53 pm

        We have a Federal Government that will print money to keep the Social Security and Medicare Ponzi scheme afloat. Mr. Madoff — a piker when compared to the S.S./Medicare Ponzi — could not print money to sustain his scheme, sadly for him.

        IMO it is neither useful nor helpful to say this, “…Social Security benefits . . . eliminated when they can no longer be paid” when it is completely obvious and 100% true that money will be printed rather than eliminating S.S. payments. Ever.

        • Hiho
          Dec 27, 2017 at 3:10 am

          And what’s the problem? Fiat money is always printed out of thin air. The question is: why? And how much?

          Your libertarian propaganda against social security will not have much effect here.

          Do not forget that SS was designed to work as a pay-as-you-go system. Moreover, as a countercyclical system it is obvious that sometimes it will run huge deficits and sometimes it will be able to run a surplus.

        • Dec 27, 2017 at 12:00 pm

          @ HiHo, Thanks for the response, always.

          Your post : “Your libertarian propaganda against social security will not have much effect here.”

          I am 66 years old, I collect S.S. and receive Medicare. I have Medigap coverage by the Blues. I like SS/Medicare, and I am in favor of it.

          So I hope we can put that to rest. Libertarian propaganda ? If I see an edifice about to topple, is it propaganda to report that fact ?

          S.S. Trustees own reporting, highlights the shortfall beginning in 2034 :

          https://www.ssa.gov/oact/tr/2016/tr2016.pdf

          Independent actuarial analysis shows that the so-called “Trust Fund” (which does not actually exist) is inadequate for planned payouts. Vastly inadequate.

          Tinkering at the edges ( a few years on the retirement age, increase FICA by a few percent, etc.) WILL NOT FIX what ails Social Security. Can not !

          So I am 100% for Social Security, and I depend on it for the percentage of my income that it supplies.

          When I say it is broke and we need to fix it, I am hoping that those in charge will begin that “fixing” process.

          BTW, the so-called “Trust Fund” is non-negotiable US Bonds, or “IOU-s” that must be redeemed to pay benefits. Since the US Government is actually broke, redeeming the S.S. Bonds, means more bonds must be issued to pay for the redemptions. That my friend, will cause money printing on a Wiemar scale, starting in about 2034.

          And as a lifetime participant ( i.e., I was never a government employee) it is the massive FIAT PRINTING to come that concerns me. Printing money for SS retirees, on top of Trillion-Dollar operational deficits as far as the eye can see. thanks to 40 years of mis-governance.

          My concern is for all those who paid in, and expect to receive “promised” (not really “promised”) benefits. Myself and you included.

    • Harambe
      Dec 26, 2017 at 12:15 pm

      Florida’s full.

      • Frederick
        Dec 26, 2017 at 1:04 pm

        Florida is the VERY last place I’d ever want to live Visited a couple times and it wasn’t my cup o tea so don’t worry Enjoy the refugees from PR

  5. Maximus Minimus
    Dec 26, 2017 at 3:22 pm

    Why does every video about RE have a floating Canadian fiat notes as a background? I know, it’s not worth what it used to, but using it as a wallpaper?

  6. prepalaw
    Dec 26, 2017 at 6:42 pm

    There is a developer renovating/adding on to a 125 year old house situated about 1/2 a mile from me in NJ. He will be hurt badly. The 8,500 sq ft deal will be priced at US$4.0 million with a real estate tax bill of US$60,000. Moodys told us the day after the tax bill was a done deal that real estate values in our area would be marked down 11%.

  7. r cohn
    Dec 27, 2017 at 10:35 am

    Even in the state where the property tax rate is the highest,% vary from county to county.My property taxes in NJ are %1.95 of the assessed value.Taxes are close to %2.4 of assessed value in some towns in Essex County NJ(Newark).% property tax rates are comparable to my rate in Nassau county on LI and in Weschester County.

    Surprising property tax rates in many communities in TX are close to the same % that I pay,but property values are lower.
    A number of people will pay more in federal income tax because of the elimination of SALT;but many of those who are currently paying the Alternative Minimum tax will see no change because deductions are gradually phased out in calculating the alternative minimum tax

  8. Bruce
    Dec 28, 2017 at 10:50 am

    Charities are wonderful, like the Trump charities. Many are TOTALLY BOGUS.

Comments are closed.