How Tax Increases Will Affect The Luxury Market In Marin & Sonoma Counties in 2013

This week North Bay Luxury Real Estate focuses on the tax increases and how they will affect the luxury market in Sonoma and Marin county this year.  Even with these tax increases the market for luxury homes in the North Bay is definitely on the upswing.

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How The New Tax Rates Will Affect Luxury Real Estate in 2013

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Hi, this is Tracy Otsuka with Sotheby’s International Realty, and I’m in beautiful Kentfield, California today. I want to talk to you about the higher tax rates and how they’re going to affect the luxury real estate market in 2013 in both Marin and Sonoma County.

So, by now, you know that luxury real estate took off in the third quarter of 2012. In Sonoma County, it was up 14.8% year over year, with an average sales price of $1,550,000.

MSI, your month’s supply of inventory, was down 65% year over year. In Marin County, MSI was also down 58% as compared to 2011, but the median price sold was up 4.1% with an average sales price of $2,550,000.

So what’s also gone up are taxes for those that could afford to buy and sell those luxury homes, which is partly why sales were so strong at the end of last year. Under the new Fiscal Cliff Deal, households earning $450,000 or more are going to pay almost 5% more in both income tax and capital gains tax in 2013. So sellers were just scrambling nationwide to cut deals before tax cuts expired at the end of the year. An example of this is Tesla billionaire Elon Musk, who was able to negotiate a deal for a home that was originally listed at $27 million. He got it for $17 million
on the condition that he close it in 2012.

So what I’m constantly being asked now is how are these tax increases going to affect the luxury housing market in the North Bay in 2013? I am going to go out on a limb and I’m going to say that although all this last minute year-end sales frenzy may mean a slight slump in the luxury real estate sales early in 2013, I just don’t believe that these tax
increases are going to stifle appreciation for a couple of reasons.

Number one: We have historically low interest rates, and you know those should continue to make the long-term cost of buying these homes attractive to buyers.

Number two: In the North Bay, foreign buyers continue to buy luxury property at ever-increasing numbers, and they’re just less affected by the higher taxes and Congress’ ongoing fiscal cliff debates. They don’t care.

Number three: We have no inventory. I actually think that the tax increases are going to decrease inventory even further because wealthy sellers, who have their properties listed now and they’re not selling because they’re overpriced, they’re going to be even less motivated to sell their nonperforming listings. So you know what they’re going to do? They’re going to take them off the market, and they’re going to give us even less inventory, which will cause prices to rise even further.

Number four: There may also be sellers who were planning in 2012 to sell in 2013, but after these tax increases went into effect, they’re crunching their numbers, and they’re basically saying, “You know what? This just doesn’t make sense anymore to sell.” So they’re going to hold off from selling. We’ll have even less inventory in Marin County and Sonoma County, which will all lead to an increase in prices, which has less to do with huge buyer demand and more to do with the fact that we just have no inventory.

So that’s my prediction for 2013 and how the tax increases are going to affect the market. I would love to hear what you think. You can e-mail me at tracy@tracyotsuka·com or catch me on all the social sites, oh Twitter, LinkedIn, Google+ and Facebook. We’ll chat soon. Have a great day.