Advocates in the housing industry, such as the National Association of Realtors (NAR), the National Association of Home Builders (NAHB) and agents around the country, have been voicing their negative opinions concerning the proposed GOP tax plan and how its possible changes may impact the housing industry. Though not yet signed sealed and delivered, the proposed plan gets closer and closer daily.
Countering bullish arguments that may impact the housing market due to the proposed GOP tax plan, here are some bearish arguments worth considering.
Among top concerns to bearish professionals are changes in deductions that may backfire in the housing industry. These proposed deductions to mortgage, interest, capital gains, and property taxes are thought to be especially tough on homeowners living in high tax states such as Connecticut, New Jersey, New York and California. Mobility issues due to new proposed requirements of tenure in a home for five years rather than the now two-year tenure plus changes specific to second homeownership are big concerns. Customer flight to no/low tax states is another. An even more pronounced inventory shortage due to proposed changes must also be mentioned as a possible negative impact.
NAR has been forthright in its opinion that lower home values will be a result of the proposed GOP tax plan. Losing deductions for state and local taxes, property taxes, moving expenses and mortgage interest are at the top of its list. Simultaneously, changes in capital gains on sales give homeowners’ incentives to stay put in their existing homes longer.
Trulia’s chief economist, Ralph McLaughlin, agrees with the NAR analysis. “Tax reform could be yet another catalyst to make the housing inventory crisis even worse than it already is…due to owners becoming de-incentivized to sell their homes.” Additionally continues McLaughlin, “Changes in deductions limit affordability for first time buyers in higher priced areas while shifts for sellers could worsen the shortage.”
Already, the supply of houses available for sale has decreased y/y 29 straight months, one shy of the all time record, and that decrease is likely to continue, according to Realtor.com. Take a look at these statistics…
– Denver listings down -73% since 2010
– Charlotte listings down -67% since 2010
– Dallas listings down -55% since 2010
– Atlanta listings down -56%
Other issues at stake here are uncertainty and inconsistency. Nela Richardson, chief economist of Redfin, indicates that the Senate proposal makes tax changes for individuals temporary until 2026. (Changes for corporations are proposed to become permanent upon passage of a bill.) Richardson says, “Changes are being done to make the corporate tax cut work and are not being done to make the housing market work.”
One New Jersey Redfin broker, Nick Bonokowski, has already lost one sale due to confusion concerning taxes. “My client, the seller, didn’t want to close the deal because he didn’t know how much he’d be paying or could no longer deduct…everyone wants information and any kind of fear just paralyses people. The uncertainty is freaking people out.”
New Jersey Congressman Josh Gotheimer is not quite as delicate in expressing his views as Bonokowski. “This (the GOP proposed tax bill) is an assault on New Jersey, another nail in our coffin.” He believes that the plan will send people, jobs and businesses to flee the state and that housing prices will plummet “somewhere between 15 – 20%.”
Lastly, Gotheimer thinks the proposed plan “resets what you can suddenly afford every year because residents will have less to spend at the year’s end.”
