Tax changes could hurt affordability

Posted: 1/15/2018

The tax bill President Trump signed into law last month may bring changes to California’s real estate market. Because California is one of the most expensive housing markets in the country, changes to interest deductions and the doubling of the standard deduction are seen as having a negative impact for California homeowners and potential homebuyers.

Starting in 2018, homeowners can deduct the interest on mortgages up to $750,000, down from $1 million in years past. Homeowners will also be limited to a $10,000 cap on what they can deduct on state and local taxes.
Chief economist at Moody’s analytics believes that prices nationwide will be about four percent less than they would have been if tax laws had stayed the same. Because the home ownership rate in California has been declining, the tax reform will make it even more unaffordable than before.

Economists predict the lowering the limits of mortgage interest and state tax deductions may benefit the economy in the long run, but some homeowners now may see the value of their properties fall. With a reduction on the state and local tax limit deduction, disposable income for some buyers will take a hit and impact their mortgage qualification.