San Diego luxury housing could see a boost under tax plan

Major changes to the tax code approved Wednesday by Congress could mean luxury homes in San Diego County will have more buyers, or at the least, see no noticeable change in sales.

The new tax plan reduces the mortgage interest deduction on new loans up to $750,000, down from $1 million. But, it also significantly reduces the corporate tax rate — meaning well-heeled people with holdings in several companies could have some extra money to spend.

Some real estate agents who sell high-end properties were optimistic after the tax vote Wednesday, especially because they said affluent buyers see real estate as a strong investment.

“You’re going to have wealthy people getting dividends, buybacks, and a lot of money to buy that second or third property,” said Brett Dickinson, a Pacific Sotheby’s International Realty agent. “Now you have excess money that you weren’t really counting on.”

There have been 127 homes that have sold for more than $4 million this year in San Diego County as of Dec. 15, said Reports on Housing, up from 93 during the same time last year. Home sales from $2 million to $4 million had the biggest percentage increase in sales, with 712 sales so far this year up from 471 in 2016.

Steven Thomas, chief economist at Reports on Housing, said he wasn’t so sure the tax change would be a windfall for the luxury market. Instead, he said it could simply keep everything about the same because changes to state and local taxes could hurt prosperous Californians.

“It is hard to surmise what it is going to mean to each individual person,” he said. “At the end of the day, we have a hot market. We are selling more and more luxury homes than ever before.”

Thomas said the people in the cut-off range could be most affected. For instance, he said those with a $900,000 mortgage get to deduct the interest on all of it, but if they try to move up to a $1.2 million house after the tax changes, they would lose $150,000 of deductible interest.

Most San Diego buyers do not need to worry about the deduction. The median home price was $529,750 in October and most buyers put 10 to 20 percent down. Even after the tax changes, with 20 percent down, the entire interest of a home costing $937,500 could be deducted.

From January to October, 8.2 percent of mortgages (including purchase and refinance loans) were more than $750,000, CoreLogic said. That was up 6.3 percent from all of 2016.

Most luxury sales are in cash, but buyers occasionally borrow money for a home even if they don’t need it. Dickinson said some high-end buyers get mortgages to get a write-off or to get cash inexpensively to use for investments in other things.

Don’t expect a last minute scramble of homebuying. Only property bought before Dec. 15 can still be deducted up to $1 million.

Low home inventory in San Diego County meant homes $1 million and below stayed on market 31 days or less in October, said the Greater San Diego Association of Realtors. But, homes more than $1.25 million took an average 61 days to sell.

Rancho Santa Fe real estate agent Linda Sansone, whose listed properties range from $1.9 million to $30 million, said it has been a good year for luxury sales, even if they take longer to sell.

“Anything that’s under $4.5 million, in the market I sell in, has been a strong market,” Sansone said. “Above the $5 million range, the air gets thinner and thinner. There are fewer buyers as it gets higher in price.”

Dickinson said the time to sell can sometimes be deceiving at the high-end. He said he often takes luxury homes on and off the market so they have fewer days on market.

For instance, he had a property in La Jolla he took on and off the market several times so when it sold it looked like it only took a week. But the property had actually been for sale for a year and a half.

While the luxury market will probably weather major changes, the tax bill could lower home prices overall, said a Moody’s Analytics study released earlier this week. It said tax cuts will grow the federal deficit, causing interest rates to rise and raising the cost to borrow.

phillip.molnar@sduniontribune.com (619) 293-1891 Twitter: @phillipmolnar

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