Tax bill effects on homeownership.

[Cincinnati_Kid]

http://www.businessinsider.com/gop-t...merica-2017-12

[Wesley Mouch]

This mainly will affect the high-end homes. From the article cited:

Most Americans won’t feel it. Their mortgages are not nearly big enough. Only about 4% of purchase mortgages made in 2017 exceeded $750,000, according to Attom Data Solutions, cited by the Wall Street Journal:

But a few regions would get hit hard. In Manhattan, for example, 64% of purchase mortgages made this year were for more than $750,000, according to Attom. In San Francisco, that proportion is 58%, and the surrounding counties of San Mateo, Marin and Santa Clara register between 44% and 55%.

The headline says there GOP tax bill will "gut benefits of homeownership". By affecting 4% of homeowners? Really?

This will have zero effect on home prices for normal folks. Expect a little pain on Wall Street here and there. Well deserved.

[aj3647]

The federal tax reform law will cause Michigan residents to pay MORE in state income taxes.

https://www.southbendtribune.com/new...b6fe5077d.html

The tax legislation, which President Donald Trump is expected to sign, will eliminate the $4,050 personal exemption. That is an issue because Michigan lets people claim a $4,000 exemption for each exemption taken on their federal return.


"The federal tax reform is going to cause people's Michigan taxes to go up. We shouldn't take the benefit of that at the state level," the Republican governor told The Associated Press in a phone interview. "We should figure out how to give that back to the hard-working taxpayers."


Snyder said while the "very complicated" tax bill may have other implications for the state tax code, the elimination of the personal exemption is "the biggest element by far."


A single person would see a $170 state income tax hike; a married couple with two children would owe $680 more.

[swingline]

The cap for the mortgage interest deduction was formerly $1 million. The modest reduction to $750k is about the only good provision in the new tax bill. This works out to about a maximum $4k annual tax increase for someone with a $1 million mortgage with a 5% interest rate. That homeowner's monthly mortgage payment would be about $5,500/mo. In other words, the tax increase would equal less than one month's loan payment. Anybody at that income level can afford the tax increase.

[Johnnny5]

I'm not a big fan of the mortgage interest deduction, and honestly I wish they would have phased it out completely. It's supposed to make home ownership more affordable, but in reality it simply raises prices and encourages prospective homeowners to carry more debt and possibly overextend themselves. What help it does offer is mostly in the form of a write off for the upper middle class and well off [[When they need it the least), and as a subsidy to those involved in the mortgage business.

[Wesley Mouch]

The federal tax reform law will cause Michigan residents to pay MORE in state income taxes.

https://www.southbendtribune.com/new...b6fe5077d.html

Nothingburger. The article quotes Snyder:

"We should figure out how to give that back to the hard-working taxpayers."

[ABetterDetroit]

First it would be nice to discuss a Detroit Metro issue without injecting party ideology heavily into it for a change. The election arguments have gone down here many times plus there is one constantly ongoing near the top of the non Detroit Board if one is inclined.

With that said how is it good for Michigan if:

1) The housing market here gets depressed in the slightest?

Honestly the housing market in this state has been the dumpster fire of the nation for the last 40 years. Literally, it has been the poster child of what you don’t want to happen to your housing market if you live in almost any other state. We need more new housing at all price levels including million and multimillion dollar homes and the jobs, services and wealth that come with them.

2) How is it good that the State of Michigan has to “figure out how to give money back” because of this bill?

The finance issues at the state level here are well known for a while now. Being realistic, Michigan is in no position to cut their income even further because they don’t have the endless deep pockets uncle sugar does and they already have been making cuts for a long time.

If a crappy housing market in comparison to other states and massive cuts to state spending was some sort of recipe for economic success we would have a lot less of the economic problems that we have had over several decades and be one of the booming local economies.

[aj3647]

Nothingburger. The article quotes Snyder:

Oh it's a "nothingburger" because Snyder has vaguely promised to "figure it out?" LOL. Man you guys are a hoot. Maybe he'll figure it out just as well as he figured out the Flint Water Crisis.

[313WX]

This is a non-problem in a state where the median home price is $136,000.

Hell, homeowners in Michigan will be lucky to see their values double 25 years from now [[and that's assuming no more economic collapses), whereas the values will have tripled or even quadrupled by that time in other parts of the country.

[JBMcB]

It should be eliminated entirely. Or, at the very least, phased out for new purchases.

Think of it this way. Imagine you run a shoe store and the government gives everyone a $10 shoe subsidy. Guess what you are going to do to the price of shoes? Raise them by $10. That's what happens to mortgages. 10% federal home subsidy? 10% higher home prices. Most of the higher price tag gets skimmed off by the mortgage companies and real estate agents.

This isn't a partisan issue - every economist of every political persuasion who studies the effect comes to the same conclusion. Here's a planet money episode about it:

https://www.npr.org/sections/money/2...liticians-hate

[Wesley Mouch]

It should be eliminated entirely. Or, at the very least, phased out for new purchases.

Think of it this way. Imagine you run a shoe store and the government gives everyone a $10 shoe subsidy. Guess what you are going to do to the price of shoes? Raise them by $10. That's what happens to mortgages. 10% federal home subsidy? 10% higher home prices. Most of the higher price tag gets skimmed off by the mortgage companies and real estate agents.

This isn't a partisan issue - every economist of every political persuasion who studies the effect comes to the same conclusion. Here's a planet money episode about it:

https://www.npr.org/sections/money/2...liticians-hate

Yes. Yes.

Fine Planet Money article. [[They're pretty good most of the time.)

So one upon a time, I was doing my taxes. And never itemized. I scraped together my mortgage interest, medical expenses [[not enough), state and local taxes, and voila! I had enough itemized deductions to do better than the standard deduction. By about $25! Wow, was I disappointed.

The mortgage interest deduction wasn't worth more to me than a couple coffees from Family Donut.

There's probably nobody in Hamtramck where the mortgage interest deduction helps them get more savings than the standard deduction. Now if I'd only bought a house in Franklin...

[ABetterDetroit]

This is a non-problem in a state where the median home price is $136,000.

Hell, homeowners in Michigan will be lucky to see their values double 25 years from now [[and that's assuming no more economic collapses), whereas the values will have tripled or even quadrupled by that time in other parts of the country.

^This^

The "why should we even try to compete because we suck" Michigan Mentality.

Meanwhile other states have created wealth for their residents that gets reinvested in their economy, a huge economic engine in home improvements, construction and a improving Tax base. And of course a plethora of entry level jobs for non college educated citizens.

But no we don't want any of that... Because they can and we can't! So it doesn't really matter...

[emu steve]

Okay, guys, here is one for you which no one got [[unless I missed the comment).

I can't copy and paste it as it comes from a financial advisory service [[someone shared it with me)...

"Home equity indebtedness is no longer deductible."

Home owners have been encouraged for years to take out 2nd mtges and the interest paid on up to the first 100K is tax deductible.

Monday it is bye, bye. Surprise. Surprise.

Second mortgages are valuable sources of funds for home improvements, car purchases, etc.

For some, take out a say 50K second and remodel a kitchen or bath and buy a new car, have one payment over say 10 years, tax deductible, etc. etc.

Ten years later, repeat the process...

Gone.

[emu steve]

P.S. Comment: What does this do to Quicken Loans business?

Do they originate only first mortgages?

I'd assume that 2nd mtge loan originations will be down significantly next year by banks, credit unions, etc.

[313WX]

Okay, guys, here is one for you which no one got [[unless I missed the comment).

I can't copy and paste it as it comes from a financial advisory service [[someone shared it with me)...

"Home equity indebtedness is no longer deductible."

Home owners have been encouraged for years to take out 2nd mtges and the interest paid on up to the first 100K is tax deductible.

Monday it is bye, bye. Surprise. Surprise.

Second mortgages are valuable sources of funds for home improvements, car purchases, etc.

For some, take out a say 50K second and remodel a kitchen or bath and buy a new car, have one payment over say 10 years, tax deductible, etc. etc.

Ten years later, repeat the process...

Gone.

In my opinion, it's irresponsible for people to take out 2nd mortgages [[especially if their home is already paid off) in order to cover expeness. That's part of what caused the 2007 crisis.

More to the point, people shouldn't be buying homes if they can't afford to maintain them. And furthermore, we shouldn't be encouraging people to make improvements they aren't absolutely necessary to make their home livable.

[SammyS]

This is a non-problem in a state where the median home price is $136,000.

Hell, homeowners in Michigan will be lucky to see their values double 25 years from now [[and that's assuming no more economic collapses), whereas the values will have tripled or even quadrupled by that time in other parts of the country.

I'd agree that that will be the case for the suburbs. We just got back to our ~2006 peak a year or so ago so that's 10 years of zero gains already. Not the case for specific areas of Detroit IMO

Additionally, this category of loan is well into Jumbo so 20% down would be the minimum for a decent interest rate, if credit is even extended. All in all, that would put the purchase price close to $1M. If you can show me a histogram of Michigan home prices as an aggregate, I can tell you how many new home owners will be affected.

[313WX]

I'd agree that that will be the case for the suburbs. We just got back to our ~2006 peak a year or so ago so that's 10 years of zero gains already. Not the case for specific areas of Detroit IMO

Additionally, this category of loan is well into Jumbo so 20% down would be the minimum for a decent interest rate, if credit is even extended. All in all, that would put the purchase price close to $1M. If you can show me a histogram of Michigan home prices as an aggregate, I can tell you how many new home owners will be affected.

Even in these relatively small pockets you mention, at least personally, I don't believe anyone who can afford a $1 million home *NEEDS* the Mortgage Interest Deduction [[especially in Michigan with its ridiculously low COL). For all intents and purposes, you're rich and already living quite comfortably.

My main concern, more so, is with the affects it will have on consumer spending. What I fear is that people, in response to the changes in the deduction, will overreact by suddenly starting to tighten their belts and put off a lot of other purchases they were planning knowing they will not be saving nearly as much money in taxes as they have before.

I'm all for gradually reducing both the SALT and Mortgage Interest Deduction, but I also think their reduction should be paired with another credit or deduction that softens the blow from phasing them out [[or even a larger reduction of the individual tax rates).

[SammyS]

^^^
I hear ya but I'll add that those who can afford a $1M home are the ones carrying the heavy end of US's tax burden [[Top 1% pay > 40% of federal taxes). Although I'm not in this category, I consider myself paying too much in taxes as it is. I'll take any break I can get.

[bust]

^^^
I hear ya but I'll add that those who can afford a $1M home are the ones carrying the heavy end of US's tax burden [[Top 1% pay > 40% of federal taxes).

I'm not sure if that's true, but if so according to this other statistic, that sounds about right:

Record inequality: The top 1% controls 38.6% of America's wealth
http://money.cnn.com/2017/09/27/news...lth/index.html

Or maybe it's not enough.

Meanwhile, I'll agree with several here: lowering the mortgage interest deduction is just about the only thing about this tax bill I like. Could have gone lower. If you're carrying a mortgage in excess of $750,000 you can afford to pay your taxes. Especially in Michigan. Besides, you're almost certainly a big beneficiary of the other tax reductions elsewhere in the bill [[see below).

Regarding the rest of it, I just don't see how it makes economic sense. Like G.W. Bush's tax cuts I think this will have a disastrous effect on our budget deficit, only worse.

The last time we had a federal budget surplus was 2001, the year before G.W. Bush's first tax cuts went into effect.

The Legacy of the 2001 and 2003 "Bush" Tax Cuts
https://www.cbpp.org/research/federa...-bush-tax-cuts

For your own interactive analysis go here:

https://www.usgovernmentdebt.us/fede...it_percent_gdp

Or, here's a chart from the Congressional Budget Office:



Note: the future projections in the chart above were from 2016, before the election, and before the recent tax cuts. Since then, the Congressional Budget Office has estimated the effects of the recent tax cuts as follows:

"According to CBO’s and the staff of the Joint Committee on Taxation’s [[JCT) estimates, enacting H.R. 1 would reduce revenues by about $1,649 billion and decrease outlays by about $194 billion over the period from 2018 to 2027, leading to an increase in the deficit of $1,455 billion over the next 10 years. Those estimates do not incorporate the effects of macroeconomic feedback."

Cost Estimate for the Conference Agreement on H.R. 1
https://www.cbo.gov/publication/53415

And just like the Bush tax cuts, they go overwhelmingly to the wealthy, only even more so:

CHARTS: See How Much Of GOP Tax Cuts Will Go To The Middle Class
https://www.npr.org/2017/12/19/57175...e-middle-class

Here's how it looks in 2018, per household income:



But by 2027 a household will need to earn around at least $200,000 to see any benefit, and it will be meager for households that earn less than $500,000. Households that earn less than $75,000, like most of them, will see a tax increase:



In 2016, the median US household income was $57,617.

US Census: Household Income: 2016
https://www.census.gov/content/dam/C...acsbr16-02.pdf

A middle class tax cut this is not. To say nothing of the effects the ballooning deficits will have on future taxes, and government services that affect us all. Our kids, our grandkids... And especially the less fortunate among us.

So yeah, not feeling sorry for you if your mortgage is in excess of $750,000. On the contrary. Pay your fair share.

[emu steve]

Even in these relatively small pockets you mention, at least personally, I don't believe anyone who can afford a $1 million home *NEEDS* the Mortgage Interest Deduction [[especially in Michigan with its ridiculously low COL). For all intents and purposes, you're rich and already living quite comfortably.

My main concern, more so, is with the affects it will have on consumer spending. What I fear is that people, in response to the changes in the deduction, will overreact by suddenly starting to tighten their belts and put off a lot of other purchases they were planning knowing they will not be saving nearly as much money in taxes as they have before.

I'm all for gradually reducing both the SALT and Mortgage Interest Deduction, but I also think their reduction should be paired with another credit or deduction that softens the blow from phasing them out [[or even a larger reduction of the individual tax rates).

Let me pivot back to my point. As indicated above, capping interest deductability at 750K in MI is pretty much a big nothing burger.

I think if homeowners stop taking out home equity loans that will hurt the home improvement industry.

I assume most home owners don't have 25K sitting in a drawer to remodel a kitchen, etc. and no one is going to their credit union and take out a 5 year personal loan.

[SammyS]

A few points Emu.

1. It's not about being able to afford to pay more taxes, it's about being fair. Why should anyone get away with not paying at all? Last I heard, > 40% pay no federal income tax. I'm not here to carry their load.

2. America cannot afford to ratchet up its debt on welfare. Those that pay should get the breaks and as harsh as it sounds, those that don't, should have to learn to live with less.

3. Business cycles transcend political terms. Clinton got lucky inheriting an economy at the dawn of a major tech boom. Bush pushed his luck with it, not to mention getting us stuck in a bullshit WoT quagmire.

[emu steve]

A few points Emu.

1. It's not about being able to afford to pay more taxes, it's about being fair. Why should anyone get away with not paying at all? Last I heard, > 40% pay no federal income tax. I'm not here to carry their load.

2. America cannot afford to ratchet up its debt on welfare. Those that pay should get the breaks and as harsh as it sounds, those that don't, should have to learn to live with less.

3. Business cycles transcend political terms. Clinton got lucky inheriting an economy at the dawn of a major tech boom. Bush pushed his luck with it, not to mention getting us stuck in a bullshit WoT quagmire.

Are you replying to me? Bust??????

I'm talking about the deductability of interest on home equity. I believe home equity loans have been in the tax code at least going back to the 1986 tax law, if not longer.

I have no problems with changing tax rates, but I'm not in favor of re-writing significant parts of the code. Tax payers make strategic decisions based on the existing code and wholesale changes mess up planning.

[ABetterDetroit]

Let me pivot back to my point. As indicated above, capping interest deductability at 750K in MI is pretty much a big nothing burger.

I think if homeowners stop taking out home equity loans that will hurt the home improvement industry.

I assume most home owners don't have 25K sitting in a drawer to remodel a kitchen, etc. and no one is going to their credit union and take out a 5 year personal loan.

“Nothing Burger”?

Uhh... but Steve you constantly hold up D.C. as a role model and where Detroit should be headed... Now what is it? ‘Don’t do it like D.C. did it at all!’ You are a bit contradictory at times.

https://dc.curbed.com/2017/8/23/1618...orhoods-zillow

[SammyS]

Bust, not you Steve

[313WX]

Let me pivot back to my point. As indicated above, capping interest deductability at 750K in MI is pretty much a big nothing burger.

I think if homeowners stop taking out home equity loans that will hurt the home improvement industry.

I assume most home owners don't have 25K sitting in a drawer to remodel a kitchen, etc. and no one is going to their credit union and take out a 5 year personal loan.

I get what you're trying to say, but you're still missing my point.

It's great that someone wants to remodel their kitchen [[or whatever). But the taxpayers shouldn't be subsidizing that.