2017 Nov 8th

The October Hoboken and Jersey City Sales Results

Well, the September “dip” has rebounded. Prices have not increased much against last year in Hoboken, though downtown JC is still soaring with double digit increases. The Heights, also, it taking off. The buyers being priced out of Hoboken are headed up the hill and it’s just nuts. Look for big changes as that neighborhood continues to gentrify.

Some of you have asked my views of the proposed tax plan. I say the chance of it passing in anything close to its current form is so negligible, that it’s not even worth addressing yet. Given the complete failure of any legislation to get pushed through Congress by this current joke of an administration, I just don’t see it happening.

Here is HOBOKEN:

Here is DOWNTOWN JERSEY CITY:

Now – JC HEIGHTS:

FacebookTwitterGoogle+Share
  1. Josh

    Interesting – $/ft is actually down (but basically flat) YoY. I agree on tax reform – it won’t happen as is, but the broad strokes are concerning. The fact that they haven’t passed anything is what scares me most – they need tax reform or they will get absolutely crushed in the mid-terms next year (hear’s hoping that happens regardless). The current plan is pretty amenable to most red states, it’s basically a big cut for corporations and sub-$260k AGI’s in states with reasonable property and income taxes. So basically everywhere except the coasts, which are all blue states. It’s a coin flip at this point in my opinion.

    More locally relevant, what do you think will happen in downtown JC? Reval assessments are due to be mailed by Monday 11/13, and some homeowners will likely see $6k taxes jump to $20k+…

  2. Lori Turoff

    I don’t believe anyone knows what will happen with the JC reval. JC is so different than Hoboken because of two crucial facts:

    – much more limited rent control in JC (which affect cash flow, which affects how multi-unit rental buildings are assessed, which keeps assessments on those properties artificially low in Hoboken, which is Hoboken’s dirty little secret).

    – many more tax abated, enormous new developments in JC. Hoboken has only the Upper Grand. Downtown JC almost every new building is a PILOT.

    It will be interesting to see how it plays out and if it make any difference on the strong demand in that community.

  3. Joe Federici

    I am worried about the tax reform bill. The red state Republicans are looking to severely curtail all the deductions that the upper middle class enjoy for home ownership in blue states. Even some blue state Republicans are supporting it.

    I think the result will be a reduction in property prices in the middle and high ends if buyers cannot deduct their mortgage interest and property taxes.

  4. Lori Turoff

    You are correct, Joe, that those changes combined with the elimination of the SALT deductions will severely hurt NY, NJ, CA and the blue coastal states/cities and will benefit only the ultra-wealthy who need it least. That’s the whole idea. It is incumbent on all of us to urge our representatives to fight the bill and to educate everyone on why the entire package is a horrible, evil plan.

  5. Josh

    Agreed, it penalizes the middle and middle-upper class in high-tax states (i.e. the coasts). If it passes, God help those poor homeowners in South Orange, Maplewood and Montclair – their taxes can run 20k-40k for homes in the $500k-$1M range. Depending on how the JC reval goes, it could be the same downtown. Imagine a Downtown JC couple that works in NY with 300K AGI, a 1M home/condo, 800K mortgage balance @ 4%, and property taxes that double from $9k to 18K per year.

    State income taxes are ~20K
    Mortgage interest on $300k excess over $500k @ 4% is ~$12k
    Property taxes are ~$18k, so assuming a 10k cap, it’s $8k

    That’s $40k in lost deductions at a 35% rate + a $9k property tax increase, or $23k a year in additional tax liability. That same $23k would roughly finance $425k over 30 years at prevailing rates. I don’t necessarily see a full transference to home values, but I can’t imagine it not having a profound impact. Even if it transfers at 50%, that’s more than a 20% correction. Nothing is certain at this point, but if tax reform passes looking anything like what’s proposed, I’d say if you’re an owner in downtown JC, be thankful for the rocket-ship appreciation over the last decade, but buckle up, it could get bumpy!

  6. MJ

    While I agree that the proposed tax reform is detrimental to the middle and middle-upper class in high-tax states and ownership of expensive homes, I am not so pessimistic about home prices as the fundamentals of population growth and wealth creation remain largely intact, which should be supportive for housing demand.

    This demand could either be fulfilled through home ownership or renting. While the new bill does make home ownership more expensive/less appealing than before, it might still make more sense than the alternative as the rental yield/cap rate in NYC, Hoboken and Downtown JC is high for the average apartment. Let’s take a $2M SFH in Hoboken, for example. For a 80% LTV, 3.8% rate, you pay total interest of $60k in the first year and approximately $24k in taxes, of which you could tax deduct $28.8k ($18.8k for interest and $10k for property tax) under the proposed house bill. Assume you are in the 35% tax bracket, your net-effective payment for the house is $74k. If you were to rent the same property in today’s market, you would probably pay $7500-8000 pm for it for a total of $90-96k a year. For lower priced homes, the comparison would likely be even stronger as the cap rates tend to be higher.

    For argument sake, let’s assume that more people will choose to rent rather than buy as a result of the new tax regime. In the near term, this may cause a dip in property prices due to lower demand, offset by potentially lower inventory as less people choose to upgrade (since their existing $1M mortgage is grandfathered). Over time, however, the stronger demand for rental properties would then push up rents till a certain equilibrium is met. In fact, in the near term, potential investors/landlords may step in to pick up the slack in demand from potential homeowners as they are still able to tax deduct the full mortgage interest and property taxes while collecting rising rental income.

    In summary, while I believe property prices will not be hit as hard as feared, we are quite screwed if the bill is passed as we will face with lower after-tax income and higher living expenses, either owning or renting.

  7. Josh

    I tend to agree at the $2M price-point. But keep in mind, there’s always been a cap at $1M for mortgage interest deduction. So I’d argue that the impact will be disproportionately felt for properties in the $1.25M range. For example, a property at $1.25M @ 80% LTV financed at 3.8% and 15k taxes.

    Before tax reform, they could deduct the entire ~$38k first year taxes and all 15k of the property taxes – so that’s $53k deductions or ~$18.5k/yr in net benefit assuming they’re in the 35% bracket.

    After taxes, they would now deduct roughly $19k in mortgage interest and 10k in taxes. So that’s $29k deductions for a net benefit ~$10k.

    Compare that to the $2M example and you’d be going from $21.7k net benefit before to the same ~$10k. So the difference in impact is really only around $3k per year between a 2M property and a $1.25M property.

    In either case, we’re talking about taking a grand a month out of homeowner’s pockets just for property related deductions. Throw in SALT income, and for the average buyer at that price point, it’s roughly a $15k/year hit. Then, if you’re in Downtown JC, your taxes could easily jump $10k, so call it $25k out of your pocket each year. I agree with the population growth and wealth creation assertions – they’re big factors and it’s largely what’s driven the rapid appreciation of late; however, I have to believe that taking $25k/year out of people’s pockets is going to be catastrophic if it happens.

  8. MJ

    I agree that the new bill is going to make homeownership more expensive and reduce average disposable income, which should then translate to lower affordability. But what I was trying to show in the example is that the alternative to homeownership, which is to rent may not be better. Hence, people may still choose to buy. However, with lower affordability, do they then trade down to cheaper properties and as they trade down, do property prices than decline? The former is likely, especially for new buyers. Now, do then see mass selling from existing homeowners as they can no longer afford the higher cost to own? Maybe, especially in higher property tax areas (probably not Hoboken and NYC and depends on the outcome of the JC reveal) but I think that’s mitigated by the grandfathering of then mortgage interest deductibility. As for the downward pressure on prices as people trade down, it seems reasonable to assume that but I am not sure if it would be that meaningful as for every demand that shifts down, there’s new demand that shift from a higher price point that potentially replaces it, unless you are in the top end of the market.

    Also, I was making the point that if more people choose to rent because of the new bill, it will drive cap rates/rental yields up and that should create a support for property prices, especially in the low to mid-high end.

    On the JC reval, it’s interesting to see what happens. Underlying, local taxes are determined by local expenses and as long as the latter remains stable, we should not expect a massive increase in total taxes collected. So it’s likely that as properties get revalued higher, the application tax rate reduces. This may actually mean that buyers of newer homes with more updated valuation may see a reduction in property taxes they pay while owners of older homes with value way below market would likely see an increase. So that may cause a idiosyncratic shift in demand in the JC market.

  9. Josh

    I completely agree with you MJ – good points. One thing to consider, while revals in and of themselves are revenue neutral, the impact is largely felt when certain neighborhoods have experienced a disproportionate share of the appreciation. While all neighborhoods have risen, Downtown (and to a lesser extent, the Heights) have seen disproportionate appreciation relative to other less gentrified neighborhoods (Greenville, etc). So if two pproperties, one in Greenville and one Downtown that were $100k each in the late 80’s are now taxed at $7k, The Greenville property may be worth $400k and the downtown JC property may be worth $2M. Lets say the rate settles at 1.5% for argument sake, the downtown property is now at $30k per year in taxes, and the Greenville property goes down to $6k. We’ll just have to see how things shake out…

  10. Joe Federici

    On the issue of exclusions for gains from the sale of principal residences, our Republican friends just released the Senate bill…

    https://www.finance.senate.gov/imo/media/doc/11.20.17%20Tax%20Cuts%20and%20Jobs%20Act.pdf

    Sellers have to be in contract before the end of the calendar year, or else the two year holding period to exclude gains for personal residences is extended to 5 years…

    So, if you owned your condo for less than 5 years, you are selling, and you are not in contract by the end of the year, then you will have to pay taxes on all your gains.

    Wow!

Leave a Reply

Copyright © 2008 Hoboken Real Estate News     Login     Sitemap