As the Trump administration prepares to garner support on Capitol Hill for a proposed tax plan, agents are questing its potential impact on the real estate industry.
Carol Staab, top 1 percent luxury real estate agent at Douglas Elliman, has released her Q3 Luxury Real Estate Outlook, “Can Trump’s Tax Plan Reenergize the Softening Luxury Real Estate Market?”
According to the report, as luxury real estate markets continued to weaken this quarter, the prospect of Trump’s tax reform being passed became increasingly attractive to high end buyers.
The tax reform proposes that the top individual tax rate be lowered from 39.6 percent, to 35 percent, freeing up a significant amount of cash flow for New York City’s wealthiest residents. Foreign investors are particularly excited about potential tax deductions as there has been an increasing number of foreign high net worth buyers looking to preserve their wealth and invest in Manhattan real estate.
“Many luxury real estate investors are choosing to heavily finance their luxury real estate purchases,” said Staab, a top Manhattan luxury residential real estate broker with Douglas Elliman. “Record low interest rates are motivating borrowers to seek financing in order to free up money for tax purposes or other investments.”
Staab added that banks have changed their mindsets about granting jumbo loans to qualified buyers.
“Wealthy buyers seeking jumbo loans are fueling a mortgage boom. Trump’s tax reform will hopefully free up additional cash flow and incentivize high end buyers to leverage less, ultimately negating a potential mortgage crisis down the road” she pointed out.
Pricing pressures seem to be the highest at the top of the market with luxury prices having dropped 13 percent. Inventory also dropped sharply this quarter, which is partially attributed to a number of luxury sellers taking their properties off the market.
New development saw prices drop by 27 percent and inventory rose for the fifth consecutive quarter. These indicators point to a weaker new development market.
As Trump continues to undo a large number of acts under Dodd Frank, lending standards at many banks are loosening and becoming increasingly more flexible. While it was once next to impossible to get a mortgage, given the strict requirements, now, it’s almost easy.
Unfortunately, should the plan come full circle, buyers in the lower end of the market will not reap any benefits. On the upside, non-luxury buyers experienced an upswing during this past quarter. For buyers in the lower price range, the median price for resales rose just shy of $1 million.
Resale inventory fell by 4.1 percent resulting in a low 5.2 months’ supply. Non-luxury buyers also benefited this quarter as listing discounts more than doubled and co-op boards started loosening their restrictions, which allowed for more sales to close. In this quarter alone, the median sales price of co-ops set a 28-year record at $850,000 representing an 8 percent increase from last year. Luxury co-op sales continue to suffer.