Turns out, the GOP tax bill signed into law last month by Donald Trump is going to have some unintended consequences on the housing market. Potential homebuyers are now wondering if they want to or can even afford to buy a home, NPR reports, and homeowners in expensive states are likely to see an impact.
As part of the new bill, homeowners will only be able to deduct $10,000 on their state and local taxes. Nearly all homeowners don’t fall under that range anyway, but the cap takes away one advantage of homeownership.
Capping this deduction will affect those in high-tax states like New York (20 percent of homeowners pay at least $10,000 in property tax), Maryland, Connecticut and California.
Lawrence Yun, chief economist at the National Association of Realtors, told NPR: “The homeownership rate is falling in California because of the unaffordable condition. Now, with the tax reform it will make it even more unaffordable than before.”
It will also hurt wealthier homeowners, who can now only deduct interest on mortgages only up to $750,000 (the cap was previously $1 million).
Mark Zandi, chief economist at Moody’s Analytics, told NPR that potential homebuyers reconsidering what they can afford could affect housing prices, too. He predicts that housing prices nationwide in the summer of 2019 will be 4 percent less than they would have been had the tax bill not gone into law.
NPR suggests these changes may actually benefit the economy in the long run, but homeowners will see changes at least initially, including a possible drop in property value.