|The new tax law was supposed to cause a slump in housing values. It hasn’t materialized – yet.
What if Congress passed a massive tax bill with scary cutbacks in deductions for homeowners – prompting dire predictions of mass property-value declines – but nothing much happened?
What if home prices in the market segments expected to be hurt the most by the tax changes actually rose significantly and showed no hints of decreasing?
Six months after the passage of the Tax Cuts and Jobs Act of 2017, where are we?
The law slashed the maximum mortgage amount qualified for interest deductions to $750,000 from $1 million; capped write-offs for state and local taxes at $10,000, (previously there was no limit); and clamped new restrictions on home-equity loans and credit lines, stripping the section on “home equity” from the federal tax code altogether.
The net effects of the changes, which were designed to raise billions of dollars in new federal revenue, were widely predicted to be negative for owners, especially in high-cost, high-tax areas of the country. These include metropolitan areas along the West and East coasts, along with dozens of pockets of high-cost neighborhoods in the Midwest, the South and the Rocky Mountain states. Late last year, some independent economists and real estate industry advocates predicted declines in home values nationwide averaging 10 percent, with potentially much higher reductions in high-price, high-tax markets. One group forecast devaluations of up to 17 percent.
Back to the original question: Where are we now? Here’s a quick update.
Realty agents in some of the highest-cost areas say the tax bill is a non-subject among affluent buyers and sellers. Jeff Dowler of Solutions Real Estate in Carlsbad, Calif., told me, “I haven’t heard anything from clients or potential buyers. The market is actually very strong, and demand hasn’t changed” since the tax law’s enactment. Anthony Lamacchia, broker-owner of Lamacchia Realty in the Boston area, agrees. He said his “gut” sense is that there has been “no difference” after the tax law. But Alexis Eldorrado of Eldorrado Chicago Real Estate said he believes the new law could be contributing to an increase of inventory in the upper brackets. Exceptionally high property and income taxes, capped as deductions at just $10,000 a year, are prompting owners to want to sell in rising numbers.
What to make of all this? It’s still early to be definitive about the long-term impacts of the tax law. Other, possibly short-term macroeconomic factors may be overwhelming the real estate tax changes: record-low unemployment, rising incomes and record-low inventories of homes for sale that are driving prices higher.
But next year, who knows? Meanwhile, it’s safe to say the calamitous plunges in home values so boldly forecast by economists last December are nowhere in sight – not yet, anyway.
Source: Washington Post