No dire results yet from 2017 tax cut
Kenneth R. Harney
WASHINGTON — What if Congress passed a massive tax bill with cutbacks in deductions for homeowners — prompting dire predictions of mass property-value declines — but nothing much happened?
What if home prices in the market segments expected to be hurt the most by the tax changes actually rose significantly and showed no hints of decreasing?
Six months after the passage of the Tax Cuts and Jobs Act of 2017, where are we?
The law slashed the maximum mortgage amount qualified for interest deductions to $750,000 from $1 million, capped write-offs for state and local taxes at $10,000 (previously, there was no limit) and clamped new restrictions on homeequity loans and credit lines, stripping the section on "home equity" from the federal tax code altogether.
The net effects of the changes, which were designed to raise billions of dollars in new federal revenue, were widely predicted to be negative for owners, especially in high-cost, high-tax areas of the country. These include metropolitan areas along the West and East coasts, along with dozens of pockets of high-cost neighborhoods in the Midwest, South and Rocky Mountain states.
Late last year, some independent economists and real-estate industry advocates predicted declines in home values nationwide averaging 10 percent, with potentially much higher reductions in high-price, high-tax markets. One group forecast devaluations of up to 17 percent.
So where are we now? Here’s an update.
• The latest data from the National Association of Realtors on existing home sales in the high-cost brackets — the most vulnerable to the federal tax hatchet — suggest that demand is actually up: Sales between $500,000 and $750,000 rose by 11.9 percent in April, compared with a year ago. Sales of $750,000 to $1 million homes jumped by 16.8 percent, and those above $1 million increased by 26.7 percent. That’s frothy.
• New research by CoreLogic, an analytics and data company, found that overall demand for homes is stable or up slightly in the 500 highest-cost, highesttax ZIP codes compared with all other ZIP codes. During the first three months of 2018, loan-application demand in high-cost, hightax areas exceeded levels of the previous four years.
• The dollar amounts of home equity-line of credit authorizations by lenders during the first three months of 2018 are "running at the same pace" as 2017, according to Frank Nothaft, CoreLogic’s chief economist. This is despite the tax law’s elimination of interest write-offs on new homeequity borrowings that are not used to renovate, buy or build a house, effective Jan. 1, 2018.
• Home-equity growth and prices overall are soaring. Homeowners saw their equity holdings surge by $1.01 trillion from the first quarter of 2017 to the same period this year. Owners nationwide gained an average $16,300 in equity for the year and presumably far more in expensive, fast-appreciating neighborhoods. Zillow’s Real Estate Market Report issued in May found that median home values nationwide are up 8.7 percent for the year — the fastest pace in 12 years.
What to make of all this? It’s still soon to know the long-term impacts of the tax law. Other, possibly shortterm macroeconomic factors might be overwhelming the real-estate tax changes — record low unemployment, rising incomes, and record low inventories of homes for sale that are driving prices higher.
But next year, who knows? Meanwhile, it’s safe to say the calamitous plunges in home values so boldly forecast by economists last December are nowhere in sight — not yet, anyway.