Happy 2018! I am excited for New Year as it always signals fresh beginnings. This year, it is truer than ever before! With Congress passing the first major tax reform that went into effect this week, everyone is wondering how this will affect both the Stock and Real Estate Markets. When speaking to those who follow the stock market closely, there is general optimism as the reduction of corporate tax rates means boosting both corporate profits and the stock market.
The tax reform also, changed a few things for homeowners, which will impact the real estate market. Last week, I posted an excellent article that spells out; “What You Need To Know About The Incoming Tax Law.” I would like to highlight three specific items in the article that may impact homeowners and the real estate market:
Item 7 – The state and local tax deduction now has a cap.
The state and local tax (aka SALT) deductions remains only in place for those who itemize their taxes. However, it is now capped at $10,000. Previously, taxpayers could reduce their gross taxable income by the amount they paid in property taxes, state & local income taxes or sales taxes. This may be a sizable deduction that is now capped, however, for high income filers in the Alternative Minimum Tax threshold, the actual impact may be much less as the amount of deductions is already limited. Additionally, for some, this reduction may be offset by the doubling of the standard deduction to $24,000.
Item 11 – The mortgage interest deduction has been lowered.
It is important to know that this law only affects new home purchases with contracts signed after 12/16/17. The new law scaled back new home-buyers mortgage interest deductions based on loan amounts from $750,000 to $1 million. The $250,000 difference sounds like a lot, however, if you calculate the actual interest paid on $250,000 loan based on the current 4% interest rate for a 30-year fixed rate loan, the amount of interest paid to borrow $250,000 in the first year comes to approximately $825 per month. On an annual basis, it is $9,900 worth of deductions, which will be incrementally less as each year passes. Even at the highest tax bracket of 37%, the amount of taxes lost is $3,663. The tax savings of several thousands should not drastically deter qualified home-buyers to borrow more to make a bigger purchase or forgo home purchase decisions all together.
Item 17 – Home sellers who turn a profit keep their tax break.
This is an essential provision that did not change. (So glad!) It allows homeowners who sell their house for a profit to omit from $250,000 for single tax filers and $500,000 for married couples from capital gains. However, they must be selling their primary home and have lived there for at least two out of the past five years.
On a macro level, I feel these changes will not vastly curb buyers’ demands for housing in Playa Vista. In our localized market, the demand has outpaced supply, turning the Playa Vista real estate market into an unbalanced Seller’s Market. Let’s take a look at the numbers from 2017:
In an unprecedented volume, there are only two condos available for sale, as of today! This is the lowest level of inventory I’ve encountered since the beginning of Playa Vista over 14 years ago. This lack of supply also negatively impacts the number of pending sales in the pipeline, both of which are seeing an almost 90% drop from a year ago.
2017 marked the most active year with the highest number of closings. Playa Vista Condo Resale Market saw a 17% jump in the number of closed sales, while Playa Vista Single Family Home Market, (not reflected in the chart), saw a whopping 360% increase from having only 10 closings in 2016 to more than tripling 36 sales. The total included two off-market sales in 2017. The huge jump in the SFR market is directly swayed by the surge of much needed new inventory by Brookfield Homes at The Collection and Jewel. However, resale SFRs still made up the majority 26 out of the 36 closed sales. Pointing to the level of strong demand for the condo resale market, among the 137 closings, 17.5% of sales sold at the asking price and of nearly half the sales last year, 48.2% sold at above the asking price! As we continue to see strong demand from limited supply and multiple offers, the level of competition and price appreciation from buyers will certainly continue.
In this new year, I am hopeful the spring market will bring some much-needed inventory. Furthermore, the conclusion of the 15-year duration of the first wave of Controlled Price Units, in 2018, should make available more entry level 1-bedroom and small 2-bedroom condos for sale. Lastly, Seabluff at Playa Vista, by The New Home Company, will be releasing 75 flats and townhomes located just east of Coffee Bean in the Concert Park District. As soon as the sales gallery opening date is announced, I will be sharing the news with everyone.
Finally, last year was a record breaking year for Playa Vista and many of our clients. Scroll down for our 8 all-time high records in 2017!
For more information about any of the new homes or other properties featured in this newsletter or this week’s open house schedule, please feel free to contact me. I am happy to offer you additional insights about the community, Playa Vista Elementary School and the dynamic marketplace.
Have a happy prosperous New Year!
Broker, Realtor ®
Palm Realty Boutique
THE PLAYA VISTA SPECIALISTS
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