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Tax Reform: Impact on Home Prices

Property ValueOver the next 18 months, nationwide home prices are expected to be around 4% lower due to the new tax reform bill. The impact the tax reform bill has on home values will largely depend on location and we could see some tension in high taxed states and expensive housing markets.

Home prices could be driven down because of the lower mortgage interest deduction. The new tax bill reduced the deduction from one million to $750,000, which makes it more expensive for luxury home buyers to borrow money. This change could also make sellers with mortgages over $750,000 reluctant to sell because they have less incentive to trade up. The mortgage interest deduction isn’t as valuable since the standard deduction was increased to $24,000 for couples. Not as many people will be itemizing deductions.

The new bill caps the total state and local property, income, or sales taxes at $10,000. The amount used to be unlimited, so this change may cause buyers to be reluctant with higher taxed homes.

Mortgage interest rates could increase, making home loans more expensive. The mortgage rates have been below 4% since July 2017, which has helped balance out the increasing home prices. If the rates go up, it will cost more to borrow money and this could impact some buyers.

Thinking of buying or selling a home? Contact us so we can provide you with everything you need to know to make the most informed decisions. We know the Maine real estate market and we’ll be happy to answer any of your questions!

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