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New York real estate weakness intensifies amid tax changes, hikes

Brittany De Lea

New York City has been running into real estate trouble since the implementation of the Tax Cuts and Jobs Act, which imposed a $10,000 cap on state and local tax (SALT) deductions.

According to a new report from real estate giant Brown Harris Stevens, the average resale apartment price fell 5 percent from one year ago, to $1.64 million. Sellers of these apartments offered their biggest discounts in 9 years – since around the time of the market crash.

New development prices fell 9 percent in the second quarter, which reflected a dip in closings at the highest end of the market, research showed.

As previously reported by FOX Business, home prices in Manhattan have been falling at the fastest rate since the financial crisis. In 2019, prices are down about 5 percent year over year. Sales in the first quarter were down 2.7 percent year over year, according to research from Douglas Elliman.

Meanwhile, an increase in mansion and transfer taxes went into effect in New York on Monday. The so-called mansion tax, which is a progressive tax that applies to home sales of more than $1 million, rose to a maximum of 3.9 percent, from a flat-rate of 1 percent. The transfer tax, which is a one-time charge on properties worth more than $2 million, also rose.

Despite an expected rush to close before the onset of those new tax rates in July, overall apartment sales still weakened in the second quarter.

It’s not just Manhattan feeling the pain, however. Pricey homes in the luxurious Hamptons are also starting to lose their value.

According to the report from Douglas Elliman from the first quarter of 2019, the high-end housing market experienced its “slowest conditions” since the financial crisis. The first quarter recorded the lowest number of first-quarter sales since 2012, an uptick in inventory and a larger share of sales below the $1 million mark. Sales were down 19.3 percent from the previous quarter, while the median sale price fell 5.5 percent to $850,000.

Falling real estate prices come amid concerns about an outmigration of individuals from New York and other high-tax states, like New Jersey and Connecticut, as mobile residents consider relocating to avoid an increased tax burden.

While Florida received more movers than any other state last year, according to data from the U.S. Census Bureau, New York's outflows to the Sunshine State were the highest – 63,772 people. New York had the third-largest outflows of any state, with 452,580 people moving out within the past year. California, another high-tax state, had the largest outflow of domestic residents – with the highest proportion of people headed to Texas, Arizona and Washington.

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And these exoduses may only intensify. As previously reported by FOX Business, now that taxpayers have seen the consequences of the new law following the first filing season, they have a clear view of the “dollar implications” that have resulted from changes to the tax code – and specifically the loss of the SALT deduction. The IRS’ recent guidance that officially squashed a potential workaround could also contribute to more relocations.

Meanwhile, on Monday, President Trump took aim at New York and Gov. Andrew Cuomo for the state’s “ridiculously high taxes” and for creating a hostile business environment. He said it was no surprise people were fleeing the state "in record numbers."

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