We’ve been fielding a lot of these questions as there’s a lot anxiety and confusion over all of these proposed changes but there are a few essential facts to remember that various commentators and industry folks have been telling us which near repeating:
1. A Stanford economist studied the likeliest changes that are in the pipeline and said that on a home purchase of $2M that the overall net difference from the current tax system to what could hit in January is $6,000. While it’s not a trivial amount of money it is relatively a small amount of money for folks who are purchasing at this price point;
2. Anyone could torpedo the tax bill during the reconciliation period which, as you’d agree, is more than possible these days. One early draft of the tax bill said that if you were in escrow before the end of the year that you’d be fine, others (like you’ve seen) say that you had to be closed by November; so who really knows!
3. If you’re more concerned on a larger existential sense consider the following:
You hear the figure that California is the world’s 6th largest economy. What is less heard is that the Bay Area itself is the world’s 18th largest economy. The area’s GDP has been growing at 8-9 percent and this growth isn’t likely to diminish lately. Think about it: what’s at the root of the area’s economy are the companies that leveraged the change from a desktop-based economy to one that relies on mobile devices. Yes there’s the hardware component (HP, Intel, AMD, Apple) but also the data component (Facebook, Google, Twitter, Instagram, Yahoo, Netflix) and the app development infrastructure that services it all. Don’t forget we are the home of uber, Square, Stripe, eBay and PayPal too. Just think about all the people on their phones everywhere we go these days. Everyone has almost everything in their lives on their phones; this trend isn’t going to diminish anytime soon. If anything, life will be increasingly on our mobile devices, in the cloud and streaming. (Think about one of the latest cases argued at the Supreme Court: Carpenter v. United States). (I expect a check from the California Tourism Board any day now…)
You’re buying in a place that is one of the most underserved housing market that is nevertheless facing enormous population pressure (because of the factors mentioned above) that isn’t easing up. And while it may seem like we have new construction everywhere you look, our sales manager ran into the Planning Director for the City yesterday and asked him how things are going, to which the Director said it’s the same as it’s been for the past 20 years for his department: they are overwhelmed with approvals running years from when they are first submitted. For example, there are 7,000 units under construction at this moment but that’s just not enough as we need to have 20 years of 10,000 new units in order before housing prices to ease. What this speaks of is the enormously byzantine planning and building approval requirements that local and state regulations require; new housing cannot come online fast enough and people are still optimistic and building. Even with the horrible Wine Country fires people are already anticipating all of the rebuilding and the opportunity this type of reset that places like Santa Rosa never thought possible before.
Last, you should remember that all of us in blue states (NY included) are getting screwed over by the Republican tax plan but it’s just the way it is. The alternative is for us to go and live in those other states where the tax bill won’t have as much impact. And while I like visiting my parents in Iowa, I’m always relieved by the fact that I’m only from there. It’s nice to visit but I’m only ever there temporarily as a visitor. Besides, high earners like us were already hitting limits in deductions anyway under current taxation and it really won’t make that much of a difference going forward. Yes, it’d be nice to pay lower taxes but we can’t have it all at the same time (at least for now).