Homeownership in the U.S. has been declining for most of the last decade. According to the October 31st report released by the U.S. Census Bureau, the rate of homeownership in the U.S. is currently 63.9 percent, down from the all-time high of 69.2 percent reached in 2004. The new GOP tax bill is expected to cause homeownership to decline further.
The Republican tax reform plan delivers a large gift to corporations and the children of wealth, while attacking the sacred cow of the middle-class; the mortgage interest deduction. As many as two-thirds of current homeowners are likely to feel the impact. The new tax legislation hurts homeownership three ways:
Today, taxpayers can deduct interest on home mortgages up to $1 million dollars. The Republican tax bill drops the cap to $500,000, limiting the value for real estate buyers in cities like Seattle and San Francisco where average home prices are higher.
The GOP tax bill also undermines homeownership in another, more subtle way, by doubling the standard deduction that all Americans can claim, increasing the standard deduction to $24,000. That will mean fewer taxpayers will itemize their taxes, further reducing the incentive to own a home.
Lastly, the GOP tax bill caps the property tax deduction at $10,000. While this change mostly affects the wealthy, it will be felt by plenty of middle-class homeowners in Seattle. (The good news: the titans of Wall Street won’t be able to deduct as much of their property taxes on their Manhattan penthouses.)
That homeownership will be negatively affected by the GOP tax bill is not up for debate. The question is, how much will homeownership be impacted? According to Moody’s Analytics, the Republican tax plan will “deflate” real estate prices nationwide. Moody’s Chief Economist Mark Zandi suggests home prices will decline by about 3 percent.
The National Association of Home Builders is one of the loudest critics of the new tax bill, warning it is likely to cause “a national housing recession”. The National Association of Realtors (of which I am a member) says “Eliminating or nullifying the tax incentives for homeownership puts home values and middle-class homeowners at risk.”
The GOP is taking a big risk with their new tax bill. The legislation delivers huge tax breaks to corporations like Boeing and Amazon and pays for them by cutting the most popular middle-class tax deduction. This may set the stage for a high-stakes battle in the mid-term election in 2018. Will you vote for the candidate that stands up for corporate tax cuts, or the candidate that is standing up for every homeowner in America? You can expect the mortgage interest tax deduction will be a major campaign issue next year.
RAY AKERS is a licensed Realtor for Akers & Cargill Properties in Seattle. Send your questions to ray@akerscargill.com or call 206-722-4444