The new changes in property taxes that will begin to take hold this year could lead to a decline in home values for clients in New York, California and other high-tax states on the coasts.
According to CNBC, National Association of REALTORS® Chief Economist Lawrence Yun noted that it will be especially significant in these areas.
“We expect some price declines in California, in New Jersey, in New York, Connecticut … in the 5 percent range.”
According to Yun, two changes in the new GOP law surrounding the treatment of real estate taxes may cause buyers of expensive homes in states with higher taxes to become more cautious.
The first change affects clients applying for a new mortgage. Under the new law, they will be able to deduct interest on home loans only up to $750,000. That’s down from the current threshold of $1 million. Existing mortgage holders won’t see any change.
The second change has to do with the $10,000 deduction cap on state and local taxes, including property taxes. The IRS said people may be able to deduct their 2018 property taxes only if they were assessed and paid during 2017. Prepaying based on estimated assessments won’t be allowed.
Yun also noted that while wealthier residents of high-tax states may be scambling, most of the country won’t be affected.
“Ninety-five percent of homeowners and homebuyers are not impacted by mortgage interest deduction limit of $750,000 or the property tax deduction of $10,000.”
But one thing that could impact everyone in the real estate market is the possibility of higher mortgage rates, Yun said.
