Last month I promised to discuss the tax reform that just passed prior to Christmas. According to most media reports, as well as the National Association of Realtors, the package is not good news for the super-hot California real estate industry. As you have probably read, the reform limits deductability of state and local taxes (SALT) as well as sets caps on deducting mortgage interest. The NAR notes that by doubling the standard deduction, Congress has greatly reduced the value of the mortgage interest and property tax deductions as tax incentives for homeownership. Congressional estimates indicate that only 5-8% of filers will now be eligible to claim these deductions by itemizing, meaning there will be no tax differential between renting and owning for more than 90% of taxpayers. Again, the consequences of this are felt more keenly in California than other parts of the country due to California’s higher overall tax rate and higher home prices.

It remains to be seen whether this will impact the Marin County and greater San Francisco Bay Area real estate markets. Many first time homebuyers who are stretching to buy a home have counted on the deductions to improve for affordability of buying so this may have a greater impact on the lower end of the market, which has been the most active. I predict it will have less impact on the higher end of the market where buyers are often all (or mostly) cash and whose income levels meant that they were already subject to mortgage interest deductibility phaseouts and AMT (Alternative Minimum Tax). However, my crystal ball is at the cleaners so we will just have to wait and see if this impacts our market.

Keep An Eye on the Stock Market

The Marin County real estate market closely tracks the stock market. When the stock market performs well, as it has been doing the past year, the Marin market does well. I would put much more emphasis on the stock market versus the new tax plan. Generally, forecasts for the market are very positive for the first half of the year, which implies a strong spring selling season.

As always, I am happy to discuss the Marin real estate market with you — just give me a call at 415-847-5584. Please scroll down to see this month’s Marin real estate market graphs.