January 4, 2018 Ralph Ragette

Tax Reform & Housing: A Reference Guide (Part 2)

 


Buyer confidence and high demand remain strong in Westchester County while our local home inventory remains historically low.  Purchasing a home is one of the largest financial decisions most will make in their lifetime.  This blog’s main purpose is to help educate the consumer on the real estate process and to provide up-to-date information on our local market conditions.

Today I would like to talk to you about Tax Reform & Housing


Disclaimer: This guide is not meant to be a resource for tax advice but instead a resource for basic information concerning only certain aspects of the new tax code and how they may impact the real estate market. You should get tax advice from your accountant or tax preparer who will explain how the entire tax code will affect your personal return.

This information comes immediately after the new tax code became law. Some of the information may be revised as the analysis of the new law evolves.

What will be the impact on the real estate market?

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:

Tax Bill Raises Concerns About Homeownership
Early consumer reaction to the new Tax Reform legislation and how it may affect their buying and selling decisions.

Metro Areas Most Affected by the New Tax Law
NAR’s analysis identifying which metro areas will be most affected by the new tax code.

Will the New Tax Law Impact Home Sales, Inventory, and Price Growth in Certain States?
Calculated Risk’s most recent take on the impact of the tax reform.

Examples of How The New Law Will Affect the Tax Incentives of Owning a Home
Early consumer reaction to the new Tax Reform legislation and how it may affect their buying and selling decisions.

Which Local Housing Markets Would Be Most Impacted by the GOP Tax Plan?
The new tax code includes two changes to the income tax structure that could potentially have significant impacts on homeowners, and by extension the housing market.

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.

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.

 


More Helpful Information


Please read disclaimers at the top of this page.  

How Tax Reform Impacts Homeowners in Each State
This site, run by NAR, hopefully, will be updated now that the tax reform bill has become law. It gives you state-by-state data on tax deductions, capital gains exemptions, and the potential impact on housing prices from the 2017 tax reform framework. You can download information for your state by clicking their map.

Which Places Pay the Most in Property Taxes?
This site gives you an interactive map where you can find the median property taxes by county.

Reforming the mortgage interest deduction: A chance for fairness for American taxpayers?
This article gives the argument for why the changes made sense. We are not saying we agree so please don’t attack us for the content. We just want you to better understand the other side, so you are prepared for those conversations.

And remember…

Some people will overreact to any change. In the current political environment, reactions from both sides may be even more passionate.

In the end, Jason Furman, a Harvard Kennedy School economist, may be proven correct:

“Nothing in my experience suggests that the views people have about the tax cuts – whether justified or not – will change after they start actually being affected by them.”

It is our job to remain objective and report the facts.

“It’s not good news. It’s not bad news. I’m just reporting THE news.”

 


 

To assure that you make the best possible decisions, it’s important that you have a knowledgeable agent on your side who is an expert in the local real estate market.  Our goal is to provide you with as much information as needed to make well-informed decisions throughout your home purchase or home sale in Westchester County, New York. 

To reach Ralph, please call (or text) 914-202-1101 or send an email to Ralph@WestchesterHomeAdvisor.com