Examining Tax Reform’s Impact on Housing

Just about six months after the revamped tax code went into effect, taxes are highest in the Northeast, while loan amounts are highest in California, according to a CoreLogic report on how the tax reform bill is affecting housing decisions.

The tax reform bill enacted by Congress in December did four main things that affect housing, CoreLogic reported: It cut marginal tax rates, dropped the mortgage loan limit for interest deduction to $750,000 from $1 million for a new first mortgage, eliminated deductibility for some second liens, and capped the annual tax deduction for property, state, and local income taxes at $10,000.

“These changes will likely affect the demand for owner-occupied housing and the type and size of new construction,” the report found, “especially in areas with high property and income taxes, and high mortgage interest expenses.”

The company's look at 500 ZIP codes identified the highest-cost areas to live in.

“Predictably,” the report stated, “most of the high-cost areas are heavily concentrated in the Northeast and West Coast.”

California had almost half of all high-cost ZIP codes in the study, with 221. The high-cost ZIPs there—heavily weighted by median price—are mostly concentrated in Los Angeles, Santa Clara, and San Francisco counties.

New York and New Jersey each had 53, while Massachusetts has 36. The high-cost ZIPs in New York—weighted by both high-cost and high-tax—are mostly concentrated in Westchester, Nassau, and New York counties, according to the report.

“In the short run, taxes affect the economy primarily through their impact on demand by changes in disposable income and tax subsidies or penalties,” the report stated.

But in the end, data or not, CoreLogic is just not sure yet what it all means.

“Perhaps, it is too early to detect the impact,” the report stated.

The report concluded that the mixed challenges, such as affordability and an ongoing shortage in housing, coupled with a decline in the unemployment rate and a robust stock market, “make it even harder to disentangle the impact of tax reform.”