It’s nearly December, and the end of the year is almost here. Most of us are focused on the holidays and online shopping at this time of year. Real estate tends to take a nap at this time of year, and Costa Mesa home sales tend to slow down a bit right in step with holidays.
How will the bill in Congress effect local Costa Mesa real estate?
Will the Bill in Congress Effect Costa Mesa Real Estate?
As we have our eye off of the real estate ball at the moment, Congress is looking at President Trump’s tax reform bill which could have a major impact on local real estate. Will the bill in Congress Effect Costa Mesa real estate should it pass? Yes, in a lot of big ways.
First, Californians will not be able to deduct state and local taxes. That’s big. The average Orange County income now is about $75,000, and many who can afford housing are well over that amount. Looking at the chart to the left, you will see the change to those deductions will have a huge effect on us locally in Orange County.
Now How Will the Bill Effect Our Local Costa Mesa Real Estate?
First, the bill proposes to eliminate the mortgage interest deduction (MID) over $500,000 for your primary mortgage. That’s big. Especially around Costa Mesa where prices are up and average mortgages are well above $600,000. The bill will only allow deductions up to $500,000 for new mortgages going forward since November 2nd of this year.
Also, the
bill proposes to completely disallow all interest deductions on Home Equity Lines of Credit (HELOC) too, which has been a primary tool for owners with equity to repair or fix up their homes. That would be no more. The bill also proposes to eliminate interest deduction on second homes as well. Additionally, the bill will cap property deductions at a max of $10,000. Last but not least, the bill will change the capital gains exclusion for sale of principal residence from 2 years to 5 years.
How Will the Bill Effect Our Local Costa Mesa Real Estate?
How does this shake out in my opinion? Not great. There is nothing good going forward for homeowners in Costa Mesa real estate. Current owners who have been in town and have smaller mortgages will likely be unaffected by the bill, but it will have dire consequences on prices and inventory.
First, inventory is already at a poor to non-existent place in Costa Mesa housing. These points proposed in the bill will only serve to encourage less purchases because prices are at an all-time high. Consequently, as people do need to sell, prices will lower because they will be having a more difficult time selling their homes. Inventory will increase, and that will also lower home prices. Should interest rates rise more as predicted, we will see prices lowering in dramatic fashion, but nowhere near like what happened in the great recession of 2008-2012.
Californians stand to lose the most with this bill passing, along with high-priced areas in the West like Austin, Seattle, and San Francisco.
It would really, really be a shame if this bill passes the way it is proposed. Call your local congressmen and women and tell them what you think.
You can reach Colin Delaney on his mobile at
(714) 743-9882 or
email is always a good way to go.