Housing Analysis

[qwerty]

A couple of years ago I went to luck with a friend and one of his friends joined us, he was from mainland China. He mentioned his daughter who was in first grade loved going to school here in the US (San Marino). I asked why and he mentioned school in China was like from 8 to 6 or something along those lines which I thought was crazy. Didn?t know South Korea and Taiwan were also like that.

 

[irvinehomeowner]

40 minutes from Woodbury to Portola High sounds about right... if you believe it's 15 minutes from Woodbury to Portola Springs.

 

[eyephone]

@eyephone:

I've asked this previously but maybe you missed it.

Can you tell us how much % slowdown and for how long?

I think it?s a wait and see approach. (See what happens in 2019 Q1 to Q2)

Cue the music. I just read an article Zillow says buyer
market in 2020.
https://www.google.com/amp/s/www.zillow.com/research/2020-buyers-market-21145/amp/

So then I still don?t see how this is different from previous years.

This is happening nationwide. Also, not every year the tax implications of owning a home changes.

The flow/ebb cycle happens nationwide also.

I thought the new tax laws didn't really affect high-end buyers due to AMT and for those that don't finance, there was no mortgage interest write-off to begin with.

What else is different?

You should watch the video for basic knowledge of the tax law change that pertains to real estate. He explains it very well and easy to watch.

Go to: youtu.be/ob2JgedvXLc

 

[meccos12]

Were they talking round trip?

Without traffic it's ten minutes each way.  Catch the lights wrong and you're at fifteen.  Add ten minutes for the drop off line and you're in the 30-40 window. 

Tustin Summer Academy was at Orchard Hills, even with half the class rooms empty, if you hit peak drop off line, it was ten plus minutes starting with the back up close to the shopping center on Portola.

Pretty sure it was one way.  They mentioned it was too dangerous to walk/run/bike so they drive and spend a lot of time organizing car pools.

Here?s another way to solve that problem. Buy in Altair (Gasps) deep breadths....,eyes bulging... popping,,, but but the Mello......Roos......is too low.

Altair = Overpriced, crazy mello roos, right next to basically a freeway as the speed limits are 60mph (most people drive 70), out in the boonies (practically Lake Forest) and surrounded by chemical contamination. 

 

[momopi]

A couple of years ago I went to luck with a friend and one of his friends joined us, he was from mainland China. He mentioned his daughter who was in first grade loved going to school here in the US (San Marino). I asked why and he mentioned school in China was like from 8 to 6 or something along those lines which I thought was crazy. Didn?t know South Korea and Taiwan were also like that.

I attended public elementary school in Taipei for few years in early 1980s.  If memory serves we had to arrive around 7am-7:30AM and perform light janitorial duties in classroom and gardens.  We had daily opening and closing ceremonies on the field where "opening" was flag raising and light exercise / basic martial arts in the morning, and closing that ended around 5PM-5:30PM ish for flag lowering.

Back then I woke up at 5:30AM-6AM and didn't get home until 6PM-6:30PM.  Saturday was 1/2 day at school.  I was fortunate that my parents didn't send me to cram school, other than English lessons on weekends prior to our move to US.  We didn't have school buses and most kids walked to school.  In Asia cram schools are popular partly because they address individual issues that public education fails to do.

Things are somewhat different today since they converted 2 year trade schools and colleges to universities.  Previously there was a lot of pressure to excel academically for college entrance exam.  Today there is a surplus of colleges and it's actually quite hard to not get admitted to college,  Consequently the value of college degrees has declined.


For those who are good at studying and rote learning, there's the alternative path of Civil Service Exam -- but it's very competitive.  In China 1.4 million applicants took the 5 hour exam in 2017 to compete for 30,000 positions.  In Korea some 440,000 applicants took the exam in 2017 to compete for 64,000 positions.  Government jobs are considered "iron rice bowl" with good benefits and pension, so many people find it attractive.

 

[Perspective]

[quote author=eyephone
You should watch the video for basic knowledge of the tax law change that pertains to real estate. He explains it very well and easy to watch.

Go to: youtu.be/ob2JgedvXLc
[/quote]

I was able to get through 17 minutes of the video. He?s taking too long to make simple points and he?s making mistakes. Good rule of thumb ? Don?t take financial advice, especially tax advice, from real estate brokers and mortgage brokers.

Another good rule of thumb ? If you?re stressing about the tax consequences of your next home purchase, you?re very likely buying too much house relative to your income and/or wealth.

Normally, the best answer to your question about how different situations affect your taxes, is to use your prior year?s taxes as a baseline, and run alternative scenarios through TurboTax. You will get very accurate answers. However, with the temporary tax changes effective in 2018, that?s not possible quite yet. The temporary nature of the tax changes affects your analysis too. Do you assume they?ll expire? Does that affect any decisions?

Having said all that, I could see the temporary tax changes as discouraging higher income move-up buyers in areas like Irvine, CA. Let?s say you?re a ~$250K married couple in a $1M mortgage on a house worth $1.3M. Let?s say you wanna stretch and get into a $1.75M house. Your plan is to take ~$300K in equity, paired with $200K in cash, and get a new $1.25M mortgage. Currently you?re able to fully deduct all mortgage interest on your $1M mortgage; but if you get a new $1.25M mortgage, only interest on $750K of indebtedness is deductible. The temporary tax changes are set to expire in 2025 anyway, and maybe mortgage interest on $1M of indebtedness will be deductible again very soon? Who knows? Businesses need certainty. So their massive tax cuts are permanent. Individuals don?t need any certainty in their taxes, right?

If you?re a $200K+ income California household, the AMT has tagged you for tens of thousands in additional taxes every year, but you should avoid the AMT from 2018-2025. The effect of the AMT was to mostly negate your ability to deduct state income taxes and property taxes, which is why the $10K limit on those deductions doesn?t really affect most higher income folks. There will be outliers affected though.

 

[woodburyowner]

If you?re a $200K+ income California household, the AMT has tagged you for tens of thousands in additional taxes every year, but you should avoid the AMT from 2018-2025. The effect of the AMT was to mostly negate your ability to deduct state income taxes and property taxes, which is why the $10K limit on those deductions doesn?t really affect most higher income folks. There will be outliers affected though.

At $200k, there is isn't much AMT, if at all.  Definitely not "tens of thousands in additional taxes every year".  Even at $300k, it shouldn't be more than $10k.  I'm assuming 800k mortgage, 10k property tax, and 2 kids.

 

[Perspective]

If you?re a $200K+ income California household, the AMT has tagged you for tens of thousands in additional taxes every year, but you should avoid the AMT from 2018-2025. The effect of the AMT was to mostly negate your ability to deduct state income taxes and property taxes, which is why the $10K limit on those deductions doesn?t really affect most higher income folks. There will be outliers affected though.

At $200k, there is isn't much AMT, if at all.  Definitely not "tens of thousands in additional taxes every year".  Even at $300k, it shouldn't be more than $10k.  I'm assuming 800k mortgage, 10k property tax, and 2 kids.

True, the assumptions you make affect the point at which AMT kicks-in. It grows dramatically when you jump a "tier" in a given year. e.g. A big bonus, sale of some ISOs, NQSOs, RSUs, etc. pushes your $200K up to $500K in a given year.

 

[eyephone]

He was comparing the difference between the 2017 and 2017 new tax law for real estate. He said he wasn?t including AMT. Also the zero percent state income tax states were effected in the new tax law compared to 2017.

[quote author=eyephone
You should watch the video for basic knowledge of the tax law change that pertains to real estate. He explains it very well and easy to watch.

Go to: youtu.be/ob2JgedvXLc

I was able to get through 17 minutes of the video. He?s taking too long to make simple points and he?s making mistakes. Good rule of thumb ? Don?t take financial advice, especially tax advice, from real estate brokers and mortgage brokers.

Another good rule of thumb ? If you?re stressing about the tax consequences of your next home purchase, you?re very likely buying too much house relative to your income and/or wealth.

Normally, the best answer to your question about how different situations affect your taxes, is to use your prior year?s taxes as a baseline, and run alternative scenarios through TurboTax. You will get very accurate answers. However, with the temporary tax changes effective in 2018, that?s not possible quite yet. The temporary nature of the tax changes affects your analysis too. Do you assume they?ll expire? Does that affect any decisions?

Having said all that, I could see the temporary tax changes as discouraging higher income move-up buyers in areas like Irvine, CA. Let?s say you?re a ~$250K married couple in a $1M mortgage on a house worth $1.3M. Let?s say you wanna stretch and get into a $1.75M house. Your plan is to take ~$300K in equity, paired with $200K in cash, and get a new $1.25M mortgage. Currently you?re able to fully deduct all mortgage interest on your $1M mortgage; but if you get a new $1.25M mortgage, only interest on $750K of indebtedness is deductible. The temporary tax changes are set to expire in 2025 anyway, and maybe mortgage interest on $1M of indebtedness will be deductible again very soon? Who knows? Businesses need certainty. So their massive tax cuts are permanent. Individuals don?t need any certainty in their taxes, right?

If you?re a $200K+ income California household, the AMT has tagged you for tens of thousands in additional taxes every year, but you should avoid the AMT from 2018-2025. The effect of the AMT was to mostly negate your ability to deduct state income taxes and property taxes, which is why the $10K limit on those deductions doesn?t really affect most higher income folks. There will be outliers affected though.
[/quote]

 

[eyephone]

Rentals are in demands now more than ever.

Those that are priced out, waiting and timing the market gotta continue to live and rent in the meantime. Millennial will / is a huge driving force behind the rentals. They don?t believe in owning and tie down. Plus the recent grads are bunking together and guess what they prefer homes vs. apartment. There it?s something new and not in the news for y?all.

?Equity Residential Seeks Buyers for Two NYC Buildings

Publicly traded landlord Equity Residential is marketing two Manhattan apartment buildings, and just completed the sale of a third, as it seeks to reduce its holdings in a rental market that?s softening.?
https://www.google.com/amp/s/www.bl...-is-said-to-seek-buyers-for-two-nyc-buildings

Rental market softening? Equity Residential is a publicly trade reit.

The other part of the article I forgot to mention. It looks like the Huge Reits are unloading properties.

?Cushman & Wakefield brokers Douglas Harmon and Adam Spies are representing Equity Residential and declined to comment. The sales team has also been hired by rival landlord AvalonBay Communities Inc., which is marketing a 50 percent stake in seven of its Manhattan properties, including one each in the West Side neighborhoods of Chelsea and Morningside Heights.?
https://www.google.com/amp/s/www.bl...-is-said-to-seek-buyers-for-two-nyc-buildings

Another article about high supply of rentals.

?Apartment landlords in Manhattan are contending with a flood of new supply that has limited their ability to raise rents. They?re cutting asking prices and granting tenants more breaks such as rent-free months as they struggle to keep their buildings full.

Bloomberg Intelligence: AvalonBay Tapping Investor Interest in NYC Assets

AvalonBay shares fell 0.7 percent Monday, closing at $167.58. They have fallen 6.1 percent this year.

The company, one of the biggest publicly traded U.S. apartment landlords, said the New York market was one of its weakest performers in the first quarter. Supply in the area ?is expected to peak late this year and then fall off considerably in 2019,? Chief Operating Officer Sean Breslin said on the company?s earnings call in April.?
https://www.google.com/amp/s/www.bl...d-to-offer-a-50-stake-in-manhattan-apartments


My thoughts: If the Big reits are unloading. Should you to? 

Herd mentality? Always works against small fish.

Another REIT is selling 4 of their properties. They bought the properties in 2013 and 2015 and they sold them in 2018. (1 office building, self storage, and two multi family apartments) They made good profits on the properties.
https://www.businesswire.com/news/h...l-Sells-Real-Estate-Properties-Behalf-Digital

 

[Perspective]

The $200K CA household's AMT hit was bigger ten years ago when prices were high, mortgages were 100% LTV, rates were ~200 bps higher, the second purchase mortgages were in the 8%+ range, and folks were buying houses 6x+ their annual incomes.

 

[eyephone]

You have to admit it has something to do with the new tax law. Look all over price reductions. In high tax states and low tax states. (It?s not seasonality)

 

[Perspective]

You have to admit it has something to do with the new tax law. Look all over price reductions. In high tax states and low tax states. (It?s not seasonality)

That's a question for realtors here. Are buyers using the temporary tax changes as a reason for offering less or not making offers? Do these buyers understand how nominal the amounts are (relative to their incomes and wealth)?

 

[eyephone]

You have to admit it has something to do with the new tax law. Look all over price reductions. In high tax states and low tax states. (It?s not seasonality)

That's a question for realtors here. Are buyers using the temporary tax changes as a reason for offering less or not making offers? Do these buyers understand how nominal the amounts are (relative to their incomes and wealth)?

So according to you there?s no slowdown?

I think many people came to conclusion that there is a slowdown.

Also, there might be a conflict of interest if you ask an RE person.

 

[Perspective]

You have to admit it has something to do with the new tax law. Look all over price reductions. In high tax states and low tax states. (It?s not seasonality)

That's a question for realtors here. Are buyers using the temporary tax changes as a reason for offering less or not making offers? Do these buyers understand how nominal the amounts are (relative to their incomes and wealth)?

So according to you there?s no slowdown?

I think many people came to conclusion that there is a slowdown.

Also, there might be a conflict of interest if you ask an RE person.

Oh no. I agree the market is slowing down. I'm just saying I don't know whether the temporary tax changes are affecting buyers in markets like Irvine. There hasn't been a new listing in my development in many months.

 

[Mety]

Let me tell you how you can still get a good ROI in this business if you are still interested in selling. It might not get sold as fast as the beginning of this year, but there still is a chance to get some good ROI.

Are you ready? Here it goes..

Do not list your property with the current comp price. It will sit and sit and sit and get delisted unless you keep reducing the price like 3 times. Instead, list your property with the last year's price. It will get multiple offers and possibly get above asking offers as well.

Here is an example of how it almost failed to sell:https://www.redfin.com/CA/Irvine/181-Pathway-92618/home/45377541
A fine detached home with 3-bedroom, but if you scroll to the price history, you can see they've first listed at $799k then they had to reduce the prices literally 5 times. Sure the home needs some more 'modern' upgrades, but it could have just listed at $739k from the beginning where they wouldn't have to wait almost 100 days to get an offer then.

Here is an example of a successful one:https://www.redfin.com/CA/Irvine/83-Lamplighter-92620/home/7214667
Another 3-bedroom detached property. The comp price would have been around $920k or even above because of the square footage, but they decided to list at $899k, just below the 900k range to attract more people, more like the last year's price range. And how did it perform? Already pending status in 4 days.

These are only few examples, but similar stories are going on in Irvine. Other cities are already kinda faded off and having a hard time selling, but like IHO, IC, CV and many other members have said, Irvine has a special charm where the price goes down slower and goes up faster. A good home with a good price is still selling pretty well.

Try to subtract about at least 5-10% from the current price you are dreaming to get. Lower the listing price, the better it will perform since it will attract more buyers. Remember, the key is in not getting greedy. If you are still making a killing with 2017's price, just do it. If 2017's price is just not cutting where your needs are at, don't sell it. **



** Do not attempt to follow exactly what I've written here. I'm not a financial advisor to you or anyone else. These are only my opinions and there is a chance I could be very wrong. Good luck to you.

 

[irvinebullhousing]

Were they talking round trip?

Without traffic it's ten minutes each way.  Catch the lights wrong and you're at fifteen.  Add ten minutes for the drop off line and you're in the 30-40 window. 

Tustin Summer Academy was at Orchard Hills, even with half the class rooms empty, if you hit peak drop off line, it was ten plus minutes starting with the back up close to the shopping center on Portola.

Pretty sure it was one way.  They mentioned it was too dangerous to walk/run/bike so they drive and spend a lot of time organizing car pools.

Here?s another way to solve that problem. Buy in Altair (Gasps) deep breadths....,eyes bulging... popping,,, but but the Mello......Roos......is too low.

Altair = Overpriced, crazy mello roos, right next to basically a freeway as the speed limits are 60mph (most people drive 70), out in the boonies (practically Lake Forest) and surrounded by chemical contamination.

Yeah,,,,I am jealous too that I can't buy it....

 

[Ready2Downsize]

When I look at recent listings, I see a lot of vacant houses. Where did those people go? I'm betting they were either investment/rentals or houses bought by foreigners who have decided to cash out.

Investment properties can still claim property taxes up to break even.

Foreigners probably weren't claiming property taxes as a deduction anyway.

Maybe we're stuck with a market in which we have to have people who are going to live in the property as the buyers while some supply comes online.

 

[irvinehomeowner]

You have to admit it has something to do with the new tax law. Look all over price reductions. In high tax states and low tax states. (It?s not seasonality)

Or it could be time for this "bubble" to burst.

This is just like horoscopes or fortune cookies, you can always find a way to make something apply to the situation.

Look at any housing graph for Irvine or the US and you'll see a seasonal pattern regarding volume, pricing, etc.

The kudos will go to those who can accurately predict how much, when is the bottom, and when it will go back up... of which I don't think you've attempted at.

Is it going to be 20%? A simple yes or no should suffice.

 

[eyephone]

You have to admit it has something to do with the new tax law. Look all over price reductions. In high tax states and low tax states. (It?s not seasonality)

Or it could be time for this "bubble" to burst.

This is just like horoscopes or fortune cookies, you can always find a way to make something apply to the situation.

Look at any housing graph for Irvine or the US and you'll see a seasonal pattern regarding volume, pricing, etc.

The kudos will go to those who can accurately predict how much, when is the bottom, and when it will go back up... of which I don't think you've attempted at.

Is it going to be 20%? A simple yes or no should suffice.

I don?t have to give a percentage.

I guess you you have to ask, what triggered/started the slowdown? I think it?s many factors and the new tax law is one of them.