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President Trump’s tax reform package had an impact on nearly half of potential buyers searching for a new home, nine percentage points less than one year ago, according to a new Redfin survey.
The tax code revision put in more of a limitation on mortgage interest and added a cap on property tax deductibility that was previously unlimited.
In the March 2019 survey, 47% of respondents said tax reform had an effect on their plans to buy a home (and conversely, 53% said it had no effect), down from 56% one year prior, when there was more speculation on what the impact on Americans’ wallets would be.
“Last year more homebuyers were worried that tax reform would hurt their home buying budgets, but it turns out tax reform wasn’t all bad or all good for homebuyers,” said Redfin Chief Economist Daryl Fairweather in a press release. “Some homebuyers, especially in low-tax states, are now paying less in taxes overall, which has left them with more cash for a more expensive home.
“For others, not being able to deduct as much of their property taxes or mortgage interest from their taxable income was the other shoe that needed to drop to make them pick up and move to a more affordable area. In the long run, we will see demand for luxury homes in high-tax states suffer the most because those homes have been hit the hardest by this tax reform, and there’s actually early evidence of that already happening.”
Of those that stated tax reform affected their home search, 14% said they lowered their price range, while 13% said they were looking at moving to a nearly municipality with lower local taxes. Respondents could choose more than one response from listed reasons why tax reform changed their plans.
But for some, tax reform had a positive effect on their decision. This included 11% that said they decided to buy a home because the new tax law gave them additional income; this was down from 19% in the March 2018 survey. Meanwhile, 8% said they were looking at a higher-priced home because tax reform added to their income, compared with 17% one year ago.
Higher-income buyers, those earning $150,000-plus a year, were more likely to see an impact from the deduction reduction on their home search, with 61% stating tax reform made them reassess their plans.
By state, 61% of New Yorkers said tax reform made them change their home buying plans, followed by Californians at 55%. For both states, 13% of respondents said they were moving to a state with lower taxes.
Overall, 9% or respondents said they were moving to another state with lower taxes, down from 12% one year ago.