More than a year on from the Trump administration’s tax-code overhaul – which included a cap on the mortgage interest deduction –buyers are reporting how the new law affects their home search
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Despite the cap on tax deductions for mortgage interest payments included in the Trump administration’s historic tax-code overhaul, less than half of homebuyers say that tax reform has had an effect on their home search.
Just 47% of homebuyers said that the new tax rules have had an effect on their home search, according to a new study from Redfin. That’s down from 56% last year – but last year the effects of the overhaul were mostly still speculative, Redfin said.
The survey included more than 2,000 people who planned to buy or sell a home in the next 12 months. The most common effect of the tax reform was homebuyers reporting that they had lowered their price range because of the decreased benefits of higher-priced homes, Redfin reported. Fourteen percent of homebuyers said that they were narrowing their price range, compared to 16% last year.
The tax reform has also spurred migration to housing markets with lower taxes, Redfin found. Thirteen percent of buyers said that they had shifted their housing searches to nearby cities with lower taxes, while 9% said that they were actually looking in other states in order to lower the tax burden.
Meanwhile, 8% of respondents said they were looking for higher-priced homes because the new tax law gave them additional income, down from 7% last year.
“Last year more homebuyers were worried that tax reform would hurt their homebuying budgets, but it turns out tax reform wasn’t all bad or all good for homebuyers,” said Daryl Fairweather, Redfin chief economist. “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 tax 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 hardest by this tax reform, and there’s actually early evidence of that already happening.”
High-income homebuyers were the most likely to report that tax reform had an effect on their home search, Redfin reported. New York had the largest share of buyers whose home searches were affected, while Kansas and Indiana reported the smallest share.
