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Studies see minimal tax reform impact on prices, buyers

Much has been made of the impact of tax reform on the housing market since two New York Fed economists concluded that the Trump tax bill had outsized negative consequences. Two different recent studies are now offering contradictory information, claiming instead that there was minimal impact on real estate prices or homebuyer behavior.

Person doing taxes and holding model of houseOne study, from First American Financial Corp., concluded that while the highest price points were affected by 2017’s tax reforms, “it is difficult to find signs that the tax changes have impacted housing” on a macro level.

“Nationally,” wrote First American deputy chief economist Odeta Kushi, “house prices have continued to rise. Median house prices have increased nearly 5 percent since the law was implemented, according to DataTree by First American data. The limited deductibility of State and Local taxes has not impacted the housing market nationally because the cap remains high enough, so most homeowners can still deduct all of their state and local taxes.”

Limiting deductions for state and local taxes to $10,000 per household was projected to be harmful to owners of expensive homes in high-tax states like California, Connecticut and New York. However, Kushi wrote, those states saw median sales prices for existing homes rise after the tax law took effect. Despite the New York Fed report, Kushi found no discernible market effect on the national, state, metro and county levels, only finding impact on house prices at the highest price points of high-cost towns.

“What we know 16 months into the change is that the highest price points of some of the highest priced housing markets may suffer as real estate is re-priced to reflect the change in the cost of owning,” Kushi said. “It appears the old adage – location, location, location – also holds true when it comes to the effects of the Tax Cuts and Jobs Act.”

A separate report from Redfin was based on data collected in a March survey, with 47 percent of responding homebuyers said that the bill affected their home search. That’s down from 56 percent last year, when consumers were speculating on the effects of the legislation rather than taking real financial impacts into account.

The most common tax-reform effect indicated by buyers in Redfin’s survey was a lowered price-range for new homes, attributed to the decreased benefits on high-priced houses. Fourteen percent of respondents reported so, down from 16 percent last year.

Daryl Fairweather, chief economist for Redfin, said that the positives to some taxpayers offset the negatives to others, leading to a negligible net result over the entire landscape.

“Last year more homebuyers were worried that tax reform would hurt their homebuying budgets, but it turns out tax reform wasn't all bad or all good for homebuyers,” said Fairweather. “Some homebuyers, especially in low-tax states, are now paying less in taxes overall, which has left them with more cash for a more expensive home. For others, not being able to deduct as much of their property taxes or mortgage interest from their taxable income was the other shoe that needed to drop to make them pick up and move to a more affordable area.”

Like Kushi, Fairweather did concede that demand for luxury homes in high-tax states will suffer (and in fact, already has). Redfin did also note that reform has affected homebuyer migration patterns, with 13 percent of buyers in March shifting their search to nearby cities with lower taxes and 9 percent looking to states with lower taxes (though those numbers, too, are down from 16 and 12 percent last year, respectively).  


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