How tax reform could affect your ability to afford a house
Rising home prices, lower tax benefits and a possible recession heading into 2019 will keep the Inland Empire’s economy chugging at a modest pace in the year ahead, one prominent Southern California economist predicted Tuesday.
Inland homeowners shouldn’t expect a big federal tax break this year following tax reform legislation, James Doti said.
“If you’re a renter, at $50,000 income, your average tax rate will go down by 1.4 (percent). You’re making $200,000, your average tax rate will go down 3 percent. …”
“But if you’re a homeowner, you, of course, get the benefit of the lower rate, but the cap benefits on your home have been reduced, and to offset that against the lower rate, it’s basically a wash.”
“At $250,000 home price, there are no benefits because you’ll be taking the standard deduction,” he added.
Doti was speaking at Chapman University’s annual Inland Empire economic forecast to more than 600 building industry professionals at the Riverside Convention Center. He is president emeritus of the university and chairman of its business department.
Tax reform could affect home prices if it keeps buyers out of the market, Doti said. Mortgage interest deductions are capped at $750,000 for new buyers.
“Everyone else is grandfathered in. But it’s new buyers who set the housing prices.”
Chapman researched predicted no downturn in 2018, in part because they foresee 1.2 million housing starts nationally this year. Doti, however, said growth will be constricted by a number of factors, including declining housing affordability, rising costs and rising interest rates.
“There will be a recession sooner rather than later. We don’t think in 2018. Maybe 2019; it’s too early to say. But we’re reaching a point where inflation is occurring… In your industry, where demand is so great, will you be the first to experience supply price increases? Certainly.”