Homebuilding stocks fell sharply last week in the wake of news of a proposed GOP tax plan that would limit two key tax breaks that favor homebuyers.
According to a CNN report, the House tax legislation calls for capping the mortgage interest deduction at $500,000 instead of $1 million. The bill would also limit the deduction for state and local property taxes at $10,000.
According to the report, reducing those breaks could be detrimental to people who want to buy homes, especially pricier properties or ones in more expensive cities.
Shares of Toll Brothers, which makes luxury homes in major U.S. cities, tumbled 6 percent on Thursday. That would be the stock’s worst day since late 2015. KB Home, Hovnanian and PulteGroup each lost between 2 percent to 4 percent apiece.
The National Association of Home Builders said in a statement, after some details about declining deductions emerged, that the GOP tax bill “will harm home values, act as a tax on existing homeowners and force many younger, aspiring home buyers out of the market.”
The trade association had been working with lawmakers to replace the mortgage-interest deduction — which lets homeowners subtract interest payments from their federal tax bill — with a tax credit offering the same incentive.
Under current law, a couple can deduct mortgage interest on loans up to $1 million. Assuming a loan-to-value ratio of 80 percent, a $500,000 mortgage would finance a home worth $625,000. That’s well over the median price of a home across the U.S. but a $500,000 loan wouldn’t come close to paying for a house in high-priced real estate markets in major metropolitan areas and suburbs.
Another negative for homebuilders: the Ways & Means proposal would cap the deduction for state and local property taxes at $10,000.