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The most thorough analysis of how tax reform will affect the housing market has come from Capital Economics. Here are some highlights:
- The tax bill could raise the net costs of buying. But, given most households will see an overall tax cut, and potential buyers are likely to put that saving towards their home, we doubt it will have a significant detrimental impact on the housing market.
- Most households stretch themselves when buying a home, and to the extent that the new code will cut taxes for most households, the overall change could be positive for the housing market.
- The impact on expensive homes could be more detrimental, with a limit on the mortgage interest deduction raising taxes for that itemize.
Here is their full analysis (7 pages): US HOUSING MARKET FOCUS: Buying still better than renting in the long run
Calculated Risk’s Bill McBride weighed in on the subject. Here are some highlights:
- The impact of reducing the MID from a maximum of $1 million in mortgage debt to $750 thousand in mortgage debt will have very little impact on the housing market.
- State and local taxes (SALT) will have an impact on housing in some areas. Some people might choose to live in one state over another (if they have a choice), based on taxation. This could impact demand in certain states – especially for the middle and upper-middle class homeowners.
- The corporate tax cuts (and other tax cuts) will mostly benefit the wealthy, and this will be a positive for high end real estate.
- There will be some negative impact based on SALT, but overall the impact of these policy changes on housing will be minimal.
Here is his full analysis: A few comments: Housing and Policy
Mark Zandi of Moody’s Analytics had a more negative opinion. Here are the highlights:
- House prices suffer under the tax plan. The tax law changes significantly reduce the value of the mortgage interest deduction, or MID, and property tax deductions, which are capitalized in current house prices.
- Higher mortgage rates that result from the higher budget deficits and debt under the plans will weaken housing demand.
- The hit to national house prices is estimated to be near 4% at the peak of their impact in summer 2019. That is, national house prices will be approximately 4% lower than they would have been if there were no tax legislation.
- The impact on house prices is much greater for higher-priced homes, especially in parts of the country where incomes are higher and there are thus a disproportionate number of itemizers, and where homeowners have big mortgages and property tax bills.
- The impact on the broader national economy of the higher stock prices and lower house prices is largely a wash.
Here is his full analysis: U.S. Macro Outlook: A Plan That Doesn’t Get It Done
Other links that might help:
On this site, ATTOM Data Solutions created two heat maps to illustrate which local housing markets could have the most homeowners impacted by these changes.
Tax plan to impact at least 11 percent of Southern California home buyers
This article takes a deeper dive into the impact on Southern California the above data from the ATTOM site.
How New Yorkers Would Lose Under the Republican Tax Bill
This article takes a deeper dive into the impact on NYC and the surrounding region.
Could tax reform actually be good news for housing?
This article explains that one expert believes tax reform could increase the supply of homes by reducing federal tax subsidies.
How the Tax-Cut Bills Could Affect Homeownership
This article from Consumer Report talks about the possible impact on both buyers & sellers.
Deduction Rollback Hurts High-Tax States, But Exodus Isn’t Assured
(WSJ subscription required) A great analysis of how taxes affect where people decide to live.