One Loser in Tax Overhaul: California Housing Markets
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What tax-change is this episode introducing and who is the guest?
This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm Charlie Turner in New York. There will be winners and losers if a Republican-sponsored tax overhaul becomes law. A couple of studies both say one loser will be California's biggest housing markets, and the reason is the proposed bill's limits on mortgage interest deduction. Let's talk about this with Wall Street Journal housing reporter Laura Cusisto. Laura, a House panel has been tinkering with the plan this week, and as of now, still has no plans to change the limit on the size of the mortgage loan from which you can deduct interest. First of all, tell us what this particular bill being argued over would do to the cap.
So right now, the cap sits at $1 million, plus you can deduct some extra if you have a second home. This would make the cap $500,000, and there would be no extra deductions for second homes. So for lots of people, obviously, there aren't a lot of people in the country who have a million-dollar mortgage, but there are, as we say in the story, some parts of the country where lots of people had the mortgages in that $500,000 to $1 million range.
And in these particular cities, most of the mortgage loans are for more than $500,000.
Yeah, so we see a place like San Jose where the median home price is more than a million dollars. And there you see that 75% of loans for new home purchases made in the last year or so made this year so far were over that cap. It's the same holds true for lots of markets in California. San Francisco is another one. New York would also fall in that bucket. The places you'd expect, the places on the coast, the places with those big home price tags.
Yeah, this is from one study, I guess, by CoreLogic. And a similar analysis by Atom Data Solutions yields similar results, I guess, in other parts of the country.
Yeah, exactly. They both looked at similar things. Adam just sliced it a little bit differently. They looked at states. CoreLogic looked at metropolitan areas. As you might imagine, you see the most dramatic results when you look at these metro areas because we have some of these cities that are just very, very expensive.
But wouldn't this overall affect just a small fraction of properties in the U.S. since most mortgage loans are for less than $500,000?
What specific mortgage-interest deduction cap does the GOP bill propose?
Yeah.
Yeah, we should be clear about that. Even if you look at it by metro, there's a list of about 15 metros where you see really pretty dramatic numbers, certainly in the double digits of the share of mortgages that are over this. And then very quickly it falls off. Even a relatively expensive market like Portland or Austin, you're seeing single-digit shares of mortgages that are actually over this limit.
I'm speaking with Laura Cosisto of The Wall Street Journal. You're listening to Your Money Matters. Thanks for listening, everyone. Laura, you write that in addition to capping the mortgage interest deduction, the bill also limits the amount of property taxes that households can deduct to $10,000 a year.
Yeah, and this one to me is interesting, actually, because the cap on the mortgage interest deduction cuts pretty safely along kind of blue state Democratic lines. The property tax has potential to be a lot more controversial. So you see something like 30% of homes in New Jersey are pay more than $10,000 in property taxes. You definitely see some of those politically sensitive suburban New Jersey neighborhoods that could be pretty heavily hit by this. You also certainly see people in Silicon Valley that are paying property taxes in the $100,000 range. That could have a huge impact on these markets.
Now, isn't there disagreement between, say, economists and also realtor groups as to the impact of changing the limit on the size of the mortgage loan?
Yeah, so we should be clear. A lot of economists hate this tax break. They think it's wildly inefficient. It goes, first of all, disproportionately to upper middle income and upper income households. And second of all, I mean, pretty much everybody agrees that the main effect of the tax break is to simply drive up home prices significantly.
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