(Bloomberg) -- Adam Blaylock was pretty sure he overpriced his Santa Clara, California, home by offering it in February for $1.48 million, since tax deduction changes would keep buyers away. But within a week, the 1,280-square-foot ranch-style house was in contract for $155,000 above asking.
The $1.5 trillion tax overhaul President Donald Trump signed in December capped mortgage-interest deductions on loans up to $750,000, down from the prior limit of $1 million. It also set a $10,000 maximum for state and local tax deductions, which were previously unlimited. Those provisions prompted one of the most powerful lobbying groups -- the National Association of Realtors -- to warn that home prices in some high-end markets would tank.
So far though, those areas have proven to be resilient. There are 308 U.S. ZIP codes that have homes with median values in excess of $1 million -- more than 92 percent of them saw their median home prices increase in March from a year earlier, according to data from online real estate database Zillow.
“We are seeing the opposite of what was expected,” said Aaron Terrazas, senior economist at Zillow. “We have certainly not seen the doomsday predictions play out.”
Median home values nationally rose 8 percent in March compared with a year earlier, while neighborhoods of San Francisco and San Jose, California, have increased more than 25 percent. Prices in affluent areas in Delaware and New York, such as the Hamptons, also surged more than 20 percent.
NAR said in January “high cost, higher tax areas” would likely see price declines as a result of the tax changes. Specifically, the group forecast a 6.2 percent dip in New Jersey and declines of 4.8 percent in Washington D.C. and New York. Nationwide, NAR said it expected home prices to rise between 1 percent and 3 percent in 2018.
The Realtors weren’t alone in their grim projections. Sixty-three percent of economists surveyed by Bloomberg in November predicted reduced demand for home purchases.
The outlook has improved since then.
‘Horror Story Estimates’
NAR Chief Economist Lawrence Yun said the group is now predicting a 4 percent gain in home prices across the country in 2018. While some taxpayers in California, a high-tax state with high home prices, may face increased tax burdens, that’s not damping interest in homes, he said.
There’s “consistent multiple bidding for $1 million homes after the tax reform,” he said.
Yun says NAR expected a big decline in prices based on earlier iterations of the tax overhaul. In addition, home prices have been supported due to a persistent housing shortage, he said.
NAR, routinely one of Washington’s top spenders, allocated more than $54 million in 2017 to lobbying, as it fought to scale back plans to eliminate the state and local tax deduction completely, and curb a House proposal to limit the mortgage deduction cap to loans of $500,000.
Those predicting the biggest carnage may have been trying to shape the debate before Congress, said Stephen Stanley, chief economist at Amherst Pierpont Securities and a former Federal Reserve researcher.
“I think many of the horror story estimates of plunging home prices were coming from people that had a vested interest,” he said.
Still, with the spring homebuying season under way, it may be too early to say prices won’t ultimately be affected, said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pennsylvania. Zandi added that it may be mid-2019 before the full effect of the tax law is known.
Home prices in 20 U.S. cities grew in February at the fastest pace since mid-2014, underscoring the persistent scarcity of inventory amid strong demand, according to S&P CoreLogic Case-Shiller data released April 24. That included strong advances in expensive areas such as Seattle and Los Angeles, along with cheaper regions including Cleveland and Detroit.
And more people are looking to buy. The share of Americans who plan to buy a home in the next six months rose to a record 7.8 percent, according to the Conference Board’s latest survey on consumer confidence. That number had fallen below 2 percent in 2009.
Among the causes: a strong labor market with the unemployment rate below 4 percent for the first time since 2000, wage gains that have edged higher and continued gains in stock prices since 2009.
There could be tax reasons, too. The new law temporarily slashes rates for individuals and creates a special break for owners of so-called pass-through businesses. It also doubles the standard deduction, which advocates say made many of the former itemized deductions unnecessary. Most of the changes took effect on Jan. 1, but many Americans won’t see how they fare under the new code until they file their taxes next April.
Only about 14 million taxpayers will take advantage of the mortgage deduction this year, a 57 percent drop from last year, according to recent estimates from Congress’s official scorekeeper, the Joint Committee on Taxation. The deduction will save taxpayers $25 billion, compared with $60 billion in 2017.
For now, buyers in the San Francisco Bay area are showing no sign of pulling back, said Jordan Mott, a real estate agent who helped Blaylock sell his house.
“We have a massive amount of buyers and not enough inventory so you end up with bidding wars,” he said.
Blaylock, a 38-year-old accountant, and his wife, India, have a new reason to be nervous. They just paid $2.25 million for a 4,000-square-foot house in San Jose, as they plan for a family. Their mortgage and annual property tax bill are both well above the new caps.
“There are still a lot of unknowns,” Blaylock said. “I won’t know the real impact on me until a year from now when I’m filing my taxes.”
©2018 Bloomberg L.P.