But, the buying frenzy of million-dollar home sales started way back in 2017 when the Trump tax changes took effect. The big impetus was the change in the maximum SALT deduction enacted in 2017 that took effect with the 2018 tax year. Before that, high-income filers could deduct all of their state and local income taxes on their federal returns. The new tax laws put a cap of $10,000 on that dedication and the wealthy started seriously looking at, and moving to, non-tax states like Florida. They were tired of paying huge state taxes, and as a double whammy, no longer being able to write them off meaning higher federal taxes. It was a no brainer to head to Florida.
At the beginning of 2017, the old record of million dollars home sales in the Northern Palm Beaches was set way back in 2005. It was a record that had stood for 12 years. When wealthy northerners started to get a whiff of the double taxation headed their way, they started buying homes in Florida. Wealthy people live good lifestyles, and they weren’t in the market for a median priced home. They wanted to be comfortable and to most that meant price tags above the million-dollar mark.
That old 12-year record was taken out and the mass exodus into Florida by wealthy northerners escaping the tax man was underway. The volume of million-dollar sales has carried the overall real estate market on its shoulders ever since. So, what would happen if that limit of the SALT deduction disappeared, and with it, the main reason that wealthy people started flocking to our state.
First, let's look at the true impact it has made on the real estate market since the increases began. After taking out that old 12-year record of million-dollar homes sales they have risen every single year. In 2018 they rose an impressive 16%. In 2019 another impressive double digit jump of 10%. Last year, the jump was truly insane with million-dollar home sales jumping a mind boggling 50%.
Before the ingress of wealthy people moving to the Jupiter area began with the new tax laws in 2017 less that 7% of all sales in the Northern Palm Beaches were over the million-dollar threshold. Lat year that percentage had jumped to 14%. So far this year the percentage of the overall market dominated by million-dollar sales has jumped to over 18%. Million-dollar home sales as a percentage of the overall market has jumped an almost unbelievable 257% since the maximum SALT deduction was capped at $10,000 in 2017.
We all know the Biden administration is going to raise taxes rather dramatically. We just don't exactly know when, or by how much. We also don’t really know what they will do about the SALT cap. Most signs point to that cap being removed and perhaps as soon as it being included in the current $1.9 trillion dollars spending package under discussion right now.
On one hand, Biden wants to increase federal tax revenue and the SALT cap does just that. However, their hatred for anything Trump almost guarantees its removal, Further, the liberal left is saying it unfairly harmed communities ravaged by the Chinese virus and it should be immediately overturned. The reality is these states and cities, while hurt by the virus, as was the rest of the country, started chasing people out of the jaws of their high taxes long before the Chinese virus was released. People had been leaving in large numbers over 2 years before the virus began.
My bet is you can pretty much bank on this cap of $10,000 being removed and with it the reason wealthy northerners started to flock to Florida in 2017.
The question is, will that have a dramatic effect on the overall Jupiter area real estate market. Right now, that does not appear to be the case. January sales of million-dollar home sales broke the all-time record in 2020 and this again before anyone had heard of the virus. Sales last January exceeded the old record, set the year before, by 41%. This year’s January numbers won’t by finalized for at least another week and have already far exceeded last year's record by an impressive 42%.
But to really get a grasp of how strong the million-dollar market segment is one must look at pending home sales. Homes currently under contract with list prices above $1 million dollars are higher than they have ever been. Ever. In fact, over 22% of all homes under contract this minute in the Jupiter area were listed above that million-dollar threshold. They are up 38% since Joe Biden was elected and up an amazing 234% compared to last year at this time.
Tax changes are coming, but so far the wealthy continue to flock to Florida to escape taxes. Will high taxes cause them to pull back on high dollar purchases like real estate? Will the removal of the $10,000 maximum SALT deduction have people moving back “home” and leaving Florida? Will bankrupt states and cities be funded by federal printing of money relieving some of the financial devastation faced in these locations?
There is no doubt 2020 was the craziest real estate year ever in Jupiter area. Ranking right up there with 2005 when the last bubble broke and prices declined by large percentages over a period of years. Could we be facing similar conditions in the years ahead? Different circumstance for sure but certainly many questions ahead.
Make sure if doing anything real estate that you are making informed decisions. Interview brokers. Ask lots of questions. Ask them how million dollar pending house sales have moved over the past 30 days. If they give you a deer in the headlights look you might start interviewing other brokers.
Paradise Sharks is just starting our 8th year in business. We have been doing nothing but real estate for decades. We study the numbers every day and know them like the back of our hand. We won’t give you that deer in the headlights look. Even better, our small business culture is not encumbered by middlemen, so our value is amazing. There aren’t many properties we cannot list for a maximum commission of 4% and many sellers we can even save more money for. Our buyers almost always get a sizable credit from us at closing as our way of saying thank you for the business. Saving money for our clients, while minimizing their stress level, is what we do.
If we can ever be of any help just let us know. Our consultations are 100% complimentary and you will find us very easy to reach at;
firstname.lastname@example.org or 561.308.0175.