How Can The Tax Plan Affect The Real Estate Market?


If you’ve been watching the news lately, you might have heard some items about the tax plan currently being proposed in Congress and what it’s possible effects could be on the real estate industry. There have been warnings of decline in home prices echoed by the National Association of Home Builders and National Association of Realtors. The two bodies cited the expensive coastal markets as some of the places that could feel the effect of this proposed tax plan.


New York And California

However, the tax plan could have an overall minimal impact on average Americans due to its long-term strategy (don’t get all doom and gloom just yet). Many homeowners may waive their mortgage due to the doubling of the standard deduction. Notable places like the Bay Area in Southern California and New York will feel the effects of the mortgage deduction cap (luckily enough for Charleston though). If homes in these areas drop in value, it could impact the equity of homeowners and may even become a reality if these homeowners decide to sell.


Bank Solvency

If this plan affects overall bank solvency, the hard impact will be felt by the homeowner as well as the banks. The removal of a local tax deduction, as well as doubling the average minimum deduction will lead to home values surpassing the $800,000 mark.  The tax reform could shrink the total number of prospective homeowners due to the effect of the mortgage deduction. The plan, however, does not touch on the current owners who will carry on with the $1 million old tax cap.


Real Estate Lobbyists

The question in most real estate lobbying groups mind is; will this be a burden to the middle class? Jerry Howard, the National Association of Home Builders chief executive officer, says that the tax plan could lead to a recession in housing and purchasing a home could become even harder. According to Aaron Terrazas, the senior economist at Zillow, retailers will feel this effect, but not certainly in declining home values.


Market Corrections

Homebuyers will be impacted irrespective of the real implications of the tax plan. This will be in the areas of the housing markets whose market correction ought to have taken place. A single-family home’s median price in San Francisco goes beyond $1 million. This is ten (yes I said ten) times higher than the median household income, making it extremely difficult to sustain such a vast metro level disparity.



Harvard economist Edward Glaeser has for the longest time favored the reduction on mortgage interest deduction and also likes part of the proposed tax plan. He is however concerned that retaining the current deductions for homeowners could hinder how Americans move to more classy homes as well as to cities where there are prospective job opportunities. Edward posits that this will effectively become a tax when one is selling a home.


The president of the NAHB Willian E. Brown signaled that they wouldn’t go down easy. William says they are in the middle of reviewing details of the tax plan which appears to confirm a number of their concerns. He further adds that nullifying or doing away with homeownership tax inducements will risk home values and middle-class homeowners.


The good thing for the real estate industry will come from reducing the mortgage deduction as well as weakening it’s sustainability. The results will therefore be the regular market forces affecting the housing market. Most importantly, if taxes for the middle-class renters are reduced, it will fast-track their ability to save enough money to enjoy the benefits of buying a new home. One too few people will benefit from mortgage interest rate deduction. For the housing market to fully benefit, a massive decrease in taxes will be required to take place.


If the proposed tax plan passes is passed by the Congress, financial planning of most Americans will have to be corrected.


If you’re wondering how the tax plan could affect your real estate decisions; let’s talk today!


If You’re Wondering How The Tax Plan Could Affect Your Real Estate Decisions, Let’s Talk Today.