Zillow Reports 2017 Tax Act did NOT Hurt Housing Market
Just before Christmas last year, Congress passed the Tax and Jobs Act. The bill, which amended internal revenue code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses, was a source of some concern for homeowners and market analysts, who feared changes to tax breaks revolving around homeownership might make the prospect of owning a home less viable for many Americans. According to a new Zillow report, however, the effects of the act have been “only slight and mostly limited to certain markets.”
Aaron Terrazas, senior economist for Zillow, wrote, “Although many taxpayers saw a net tax cut in 2018 as a result of tax reform, some – particularly those in higher-tax states – could have seen their tax bill rise as some of the traditional tax benefits of homeownership were diminished.” He noted the federal tax code changes did include a cap on state and local tax (SALT) deductions in the amount of $10,000, lower thresholds for full mortgage interest deductions, and higher standard deductions for most filers that might lead to fewer homeowners opting to itemize their SALT deduction or their mortgage interest deduction.
The Zillow research team concluded that the act affected areas where homeowners had historically used the SALT deduction heavily. About one in five homeowners use the deduction nationally, but in areas where the numbers climb to two or three in five, home value appreciation closed by 0.6 percent compared to national slowing of 0.3 percent. “This relationship is particularly noticeable in a handful of metro markets that straddle state lines where tax laws are sharply divergent,” Terrazas noted. In Boston, Massachusetts, 41.2 percent of filers took the SALT deduction while, on the other side of the state line but still in the Boston metro area in New Hampshire, 18.4 percent of filers took the SALT deduction. In Massachusetts, home value appreciation slowed by 1.3 percent but accelerated by 0.5 percent on the New Hampshire side.
The Zillow report concluded by stating that the first month any home-value growth or decline in terms of the passage of the tax act was “statistically significant” was in June 2018. Zillow stated it will “continue reassessing results monthly with new incoming housing market data, though at some point in the future it will be too far from the legislative changes to attribute any relative slowdown or acceleration to tax reform.
Do you think the 2017 Tax and Jobs Act was a good piece of legislation?