Will the New Tax Reform Cause a Spike in Specific Markets?

February 21, 2018 by Brandi Jackson
real estate taxes

President Trump signed the new GOP tax bill into law on the 22nd of December 2017, spurring a lot of questions from people wondering how the change in taxes will affect their lives and their homes. Under the new tax reform, many experts predict that national home prices will begin to take a hit, although the impact is expected to be more significant in markets with higher-priced homes.

According to information revealed by Moody Analytics, some counties in New York, and New Jersey might experience some changes in their taxes. Some of the markets that are most likely to experience this according to statistics include:

  •         Essex, Passaic, Hunterdon, Gloucester, Mercer, Somerset, and Bergen in New Jersey
  •         Westchester, Rockland, New York, and Orange in New York
  •         Lake, Kendall, and McHenry in Illinois
  •         Fairfield in Connecticut

The Policy Changes to Affect Homeowners

The new tax reform includes policy changes that are worth looking at for homeowners. The first issue is the mortgage interest deduction, which allows homeowners to reduce their taxable income. The bill will lower the deduction cap to the first $750,000 of a loan, while the TCJA hikes the standard taxpayer deduction up to $12,000 for single filers. This means that it may no longer be a good idea for some households to itemize their mortgage interest deductions.

According to an economist at Zillow, about 44% of US homes are currently valuable enough for itemization to make sense. However, that number falls to 14.4% with the new bill.

Additionally, housing interest groups are concerned that the scaled-back tax opportunities for homeownership might harm prices for homes in more expensive markets. These changes could stop homeowners from wanting to move, which means that the market doesn’t get any new listings. However, it may not be as bad as some people say.

Currently, only about 9.4% of the homes in the US have a mortgage value of over $500,00, and this means that most homeowners wouldn’t qualify for the tax benefit anyway.

How Will Home Sales be Affected?

One of the biggest worries for professionals in the real estate market is that reduced tax benefits will stop people from wanting to purchase a new home. The mortgage interest deduction cap imposed by the new tax bill will only apply to new purchases, which means that some existing homeowners might not be as excited about the idea of moving.

While there’s some argument that the reform will lead to more disposable income for buyers, which is good for the housing market, the loss of housing benefits could also raise the risk for fewer home sales.

Of course, some experts in the real estate market suggest that very few people in the home buying market will purchase a home based on the promise of a tax deduction. Instead, people are looking for the perfect property to live the American dream, regardless of what it means for their tax.

The Change Might Not Be as Big as You Think

Even in an ideal real-estate market, the price changes that we’ll probably see within the current housing industry are likely to be within the boundaries of typical price fluctuations. Additionally, since price drops are only expected to occur within the higher end of the market, this should have a very small impact on the overall economy, because bigger homes make up the smallest percentage of the market.

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