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Tax bill likely to slow in home prices: analysts

New law trims mortgage interest and property tax deductions

(Fotolia)
(Fotolia)

The steady increase in housing prices in many of the nation’s priciest markets is expected to slow in coming years, analysts say, as the new tax law begins to reshape a major part of the U.S. economy.

For generations, the tax code has subsidized homeownership, particularly for people in the upper-middle class and beyond. The tax legislation, however, pushed in the opposite direction, scaling back subsidies once thought untouchable.

To pay for other tax cuts benefiting individuals and corporations, the tax plan trims the mortgage interest deduction and property tax deduction, which combined allow some homeowners to take tens of thousands of dollars off their taxable income.

The law allows interest to be deducted on mortgages only worth up to $750,000, instead of the previously existing $1 million limit — people who obtained loans before Dec. 15 are grandfathered into the $1 million limit.

It also put a $10,000 cap on the amount of state and local taxes, including property taxes, that can be deducted from the federal return.

Economists and housing experts broadly agree the changes will slow price increases in expensive housing markets — though nobody expects housing values to decline, given the overall strength of the economy and the fact that there are relatively few houses for sale in top markets.

Still, experts are debating who wins and loses from the changes, and the reality may turn as much on perception as on the fundamental economics.

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Bonnie Casper, a real estate agent with Long and Foster in Bethesda, Md., said the new rules will put a lot of prospective homebuyers in wait-and-see mode, which could prompt a slowdown in the market.

“If they’re not going to have a tax benefit, maybe they’ll go rent and not buy,” Casper said.

Still, Greg Smith, a certified financial planner at the Wise Investor Group at Baird, said homebuyers and homeowners should not get carried away with calculations over the impact of the tax bill.

“It’s easy to be short-term oriented,” he said. “If you’re buying a house, hopefully you’re buying a house because you’re going to be there for at least five years, and a lot can happen in five years.”

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