More than a year on from tax reform luxury homes may be impacted

There’s been a drop in the share of homebuyers who say that 2018’s major tax reform is impacting their home search.

According a poll by Redfin, 47% of buyers said they have adjusted their search criteria as a result of the reforms, down from 56% last year following the tax changes.

"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 Redfin chief economist Daryl Fairweather. "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.”

Fairweather added that for others, not being able to deduct as much of their property taxes or mortgage interest from their taxable income was enough to make them move to a more affordable area.

Asked how the tax reform law had affected their plans to buy a home, a lower price range was the most common response because of decreased benefits on high-priced homes (14%, down from 16% last year).

Among other responses, 13% of buyers said they shifted their search to nearby cities with lower taxes, while 9% said they shifted their search to states with lower taxes. In 2018, these were stated by 16% and 12% respectively.

By contrast, 8% of respondents said they are searching for higher-priced homes because the new tax law gives them additional income, down from 17% last year while 11% said they decided to buy a home because the new tax law gives them additional income, down from 19% in the March 2018 survey.

“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," Fairweather said.

Other findings

• High-income homebuyers were the most likely to report in this year's survey that tax reform has had some sort of effect on their home search with 61% of those earning $150,000 or more saying that the new tax law had an effect on their home search, which was true for less than half of households earning under $150,000.
• The largest reported effect on high-income homebuyers was that 18% said they have now decided to buy a home thanks to their extra take-home income, but 16% said they are now lowering their price range due to decreased tax benefits on high-priced homes.
• New York had the largest share of homebuyers who said that tax reform had affected their home search at 61%. They were most likely to have lowered their price range (17%) or shifted their home search to cities with lower taxes (17%).
• Kansas and Indiana had the smallest share of homebuyers whose search was affected by tax reform, each at 24%.