Don’t Buy A Home In 2023 (Sellers Panicking)

Americans are leaving California and New York in droves. People are getting fed up and moving to Arizona, Nevada, Texas, or Florida. The main reason why is money. What's up, Graham? It's guys here. So for the first time ever, the housing market is being cut in half. That's right, brand new data just confirmed that national housing prices are both crashing and surging at the exact same time, depending on where you live. Remarkably, something like this has never happened before in history.

Not to mention, in the middle of all of this, housing prices just broke a decade-long streak. California passed a new housing tax that will deliver the hardest hit to the market since 2007. A new proposal could wind up costing you a lot more money, especially since Social Security is running out sooner than expected. So, that's why we got to break down exactly what's going on, which markets are seeing the biggest price cuts, why you should not be buying a home in California, and then finally, what you could do about all of this to save a little bit of money.

On today's episode of Facebook job recruiters, have it made. Although, before we start, as usual, if you appreciate all the information and research that goes into making a video like this, it does help out tremendously if you hit the like button or subscribe. Or, if you want to see updates like this before I'm able to make a full video on it, feel free to check out my free newsletter down below in the description because you'll be able to post a lot more there than I can include in a video. So with that said, thank you guys so much, and now let's begin.

All right, so first we got to talk about what's happening in the housing market because I gotta say, it's rather surprising. On a broad scale, yes, it is true that prices are coming down. In fact, as you can see in the Case-Shiller index, prices are already five percent lower than they were back in June of 2022. But this also marks a very rare occurrence where prices are officially lower year over year. Yes, you heard that correctly. The last time this happened was all the way back in 2012, right after the great financial crisis.

One of the main culprits leading to these lower prices isn't so much higher interest rates, but instead, more inventory. See, even though fewer sellers are listing their properties, the ones that do are facing sixty percent more competition than they had a year ago. Since old listings are no longer selling, just consider it like this: if 10 new listings are coming on the market every month and 10 are selling, inventory would stay the same and prices would remain neutral. But now, if eight new listings are coming on the market every month and only five are selling, well then you have fewer new listings at the same time that more inventory is building up, prompting some sellers to begin reducing the price.

That's pretty much just what's happening here. See, even though new listings in March were nearly 30 percent below pre-pandemic levels, inventory has increased 59.9 compared to the year prior. But that’s still dramatically lower than what we've seen in the past, suggesting that some areas could actually continue going higher. As Black Knight research pointed out, the entire housing market has pretty much been cut in half right down the middle, with the West Coast having seen a 10% drop while the East Coast saw a 10% gain.

In terms of the specifics, home prices fell seven and a half percent in Seattle and dropped 10.3 percent in San Francisco. At the same time, home prices surged 12% in Miami and jumped 9.3 percent in Orlando. Why is this happening? Well, as you can see, the areas that declined just so happened to be almost exactly aligned with the areas that have the highest prices, and the opposite applies to those which saw home values increase. Basically, higher-priced houses have had more room to fall or have seen more of a net migration to the locations with more affordable housing.

Although one state in particular is about to see even more of a home buyer exodus, and that would be none other than California. Beginning April 1st, Los Angeles residents will be subject to an additional four to five and a half percent tax on all properties sold over $5 million. This is expected to completely destroy the high-end property market throughout the entire state, potentially resulting in even more people leaving.

So here's the deal: most states have what's known as a transfer tax, usually paid by the seller anytime a property changes ownership. In Los Angeles, the transfer tax was about 0.45% of the sales price, with money usually going back into the county. But that was until, of course, Measure ULA went into effect. This is a new plan that was established to fund affordable housing and provide resources for the homeless by enacting a four to five and a half percent tax on the sales price of every property sold over five million.

The long-term effects of this are said to be disastrous. Of course, for those unaware, here's a bit of background: homelessness is a serious issue throughout California, which is occupied by more than half of all unsheltered people in the country. In fact, California spent $10 billion between 2018 and 2021 trying to solve the issue, but the number of those living on the streets continued to rise, despite California soon becoming the fourth largest economy in the world.

In this case, though, a four to five and a half percent transfer tax is expected to raise $672 million for affordable housing. And it's not just applicable to Los Angeles. The problem, though, comes with the fact that California's one percent currently pay more than half of the state's income tax, and as of lately, a lot of them are leaving. That's a huge problem. The CEO of the California Taxpayer Association even said that the top five percent of income earners pay 70 percent of the personal income tax. So if even a few of those taxpayers rethink California as a place to live, it does have an impact on the state budget.

In terms of the housing market, though, even though people hear "mansion tax" and assume that it only applies to A-list actors, athletes, and hedge fund managers, in reality, it's mainly going to affect the construction of multi-family and commercial buildings because of the five percent tax, and the entire amount can often equate to more than half of a builder's overall profit margin. This means that there's even less incentive now for investors to add more housing supply into the market. Businesses will be less inclined to expand, and this only gives more of a reason for people to leave.

On top of that, it’s said that the new tax would apply to the entirety of the sale consideration, not solely the amount in excess of the five or ten million dollar thresholds, and regardless of whether the property is sold at a gain or a loss. This means that a property that sells for $4,999,999 will not have to pay the additional tax, while a property that sells for one dollar more will have to pay a $225,000 fee. It just makes no sense.

Personally, I think this measure affects the entirety of California because even though this currently only applies to the largest cities, the expectation is that the dollar amount could very well be lowered, and there's nothing stopping them from applying this throughout the entire state. On top of that, to me, there's really no logic in applying the tax to the entire amount. It would be no different than the IRS saying if you make more than $44,726, all of your income will be taxed at 22 percent. No tax system works like that, and generally it's only the tax above that amount that applies, not the whole amount.

I see this, unfortunately, as a misguided attempt to solve a problem by simply throwing more money at it versus solving the core issue, which in my opinion, as a former resident of California, is simply a lack of accountability throughout all statewide spending. Kind of like spending a hundred billion dollars on a high-speed rail that went nowhere. If instead, California spent more money prioritizing mental health or addiction, I think they could go a lot further than raising taxes on people who are more likely to leave.

But speaking of that, there is another topic that's most likely going to have a direct impact on you, and that's what brings us to a brand new proposal to raise taxes. Let me explain. As it stands right now, the United States is quickly running out of money, with the national debt approaching $32 trillion. Now typically, this isn't much of a concern when interest rates are low and you could pretty much borrow as much money as you wanted to for free. But now, with rapidly rising rates, the United States is beginning to pay a lot more in interest—roughly a trillion dollars a year to be exact—and that's a problem, especially when costs are only expected to go higher.

So as a way to pay for the national debt, a new proposal would cut the deficit by three trillion dollars over the next ten years, and it's most likely going to have an effect on you in one way or another. First, this would increase the corporate tax rate from 21 to 28, raising $1.3 trillion dollars. As they say, this would still be lower than the 35% tax that was established before the 2017 Tax Cuts and Jobs Act, but it would ensure that companies pay their fair share at a slightly higher tax rate than what we're currently seeing.

In terms of the potential repercussions of this, a Tax Foundation analysis found that a 28% corporate tax rate would reduce GDP by 0.7%, or $160 billion dollars. Stocks and wages would marginally decline, and 138,000 full-time jobs would be lost. Thankfully, they believe the loss would be gradual, but it could result in a GDP decline of $720 billion over the next ten years, which is larger than the tax revenue that would be generated in its place. As a result, they believe that long-term higher corporate taxes would result in incomes dropping by one and a half to two percent.

So overall, as far as I think about all of this, a 28% tax is probably not the most effective at generating revenue, but it's still lower than it used to be, so it could be worse. Like, this one: and that would be a minimum income tax on the 0.01%, which would generate $436 billion dollars. This would encompass a minimum 25% tax on American households worth more than $100 million dollars, which would be more than triple the 8% tax the wealthiest currently pay.

But there's a bit of a problem with this math in that it would tax unrealized capital gains, and that would be unprecedented. But just consider this: if you made a thousand dollar investment that over time grows to five thousand dollars, you don't have to pay tax on that four thousand dollars of profit because you haven't locked in and realized those gains by selling. After all, your investments could just as easily decline in value the next day. So until you click sell, those profits are not guaranteed.

In this case, however, they want to tax the unrealized capital gains of those worth more than $100 million dollars, which would not only be impossible to implement, but imagine being forced to sell shares to pay a tax on an investment you weren't planning to sell to begin with. The second to that, you also have the narrative that they're currently only paying an 8% tax, which is only true in relation to their overall net worth, which is largely already taxed to begin with.

It would be kind of like saying someone with a million dollar net worth only pays 10% tax, assuming they pay 50% tax on their $200,000 income. But on a more practical level, taxing unrealized capital gains is going to be an impossible task. The Supreme Court previously ruled that under the 16th Amendment, there must be some actual transfer of rights before Congress could tax appreciation as income, and it'll be a massive waste of resources for everybody involved if they decide to move forward on this.

But there are a few other proposals that do have a much higher chance of passing. One of them would increase the 3.8% Affordable Care Act tax to five percent on Americans earning more than $400,000 dollars. They would also close the loophole that allows people to bypass this tax by running their income through an LLC or separate corporation. And third, the plan would increase the top tax bracket from 37% back to 39.6%, where it stood prior to 2017. To me, this is probably the most realistic outcome since the Tax Cuts and Jobs Act is set to expire anywhere in 2025, so the taxes are going up either way.

Plus, for anybody currently in that tax bracket, the extra 2.9% is probably going to be unnoticed. Finally, fourth, they would quadruple the stock buyback tax from 1% to 4%. For those unaware of what this is, essentially when publicly traded companies have excess capital, they could use that money to buy back their stock, raising its value. However, critics argued that the money should be spent back on their employees’ growth and other public services, not enriching their shareholders.

But as far as my own thoughts, I do believe that stock buybacks can be a good use of capital. For example, there are cases where company stocks are beaten down and trading below their true value. In that case, buybacks give the company the opportunity to capitalize on this, giving them an almost risk-free guaranteed return. On top of that, a Tax Foundation analysis found that when a company has more cash on hand than they could reasonably use, they either hold onto it or return it to shareholders. In this case, companies make investment in growth decisions within the company first and then buy back shares afterward, only with what's left over.

So, I doubt this would really be something worth pursuing. However, we do have another tax proposal that's pretty much the exact opposite of this, and that would be the Fair Tax Act—which really goes to show you just how subjective the term “fair” is. But I digress. This proposal suggests that income taxes slow economic growth, hampers our ability to be competitive as a country, reduces investment, lowers productivity, and impedes our ability to socially move upwards.

So a better solution would simply be a flat tax on consumption, not income. If that sounds confusing, let me explain: instead of paying 20% to 50% tax on all of your income, you would simply pay a flat 30% sales tax on all of your purchases. This raises the question: what if you're currently living paycheck to paycheck, so everything you buy suddenly costs 30% more? Well then, they thought about that and solved this problem by sending out rebates that could help cover the additional sales tax for lower income individuals.

Although, in terms of my thoughts, this would certainly reward people with a high income who don't like to spend a lot of money but would end up costing everyone else a lot more. Not to mention, a 2004 study found that if the United States were to replace its current tax system with a sales tax, the rate would have to be as high as 60% to bring in the same amount of money as we are currently. Any lower, and we'd likely plunge even deeper into a worse national debt, which was the entire reason the tax was enacted in the first place.

Again, personally, as much as I'd be open to a flat income tax, the chance of this one passing is non-existent. And to a certain degree, I'm rather perplexed how anyone could waste time writing this or even considering it as an option. The way I see it, this whole thing is completely pointless. So let me know what you guys think of this down below in the comments. Are you for it? Are you against it? Do you think it's a good idea or a bad idea?

As always, I do my best to read and respond to as many comments as I can. So let me know what you guys think. Thank you so much for watching. As always, feel free to add me on Instagram, and don't forget that you could get a free stock with all the way up to a thousand dollars with our paid sponsor public.com down below in the description when you make a deposit. With that, Graham, enjoy. Let me know which free stock you get. Thanks again, and until next time.