CHICAGO – The Republican proposal to overhaul the U.S. tax code, if enacted, could negatively affect home sales and housing prices, the National Association of Realtors (NAR) warned.
Under the draft plan, the mortgage interest deduction would be limited to loans of $500,000, down from the current $1 million cap.
When the proposed tax changes were unveiled, they reverberated through the NAR’s 2017 Realtors Conference and Expo in Chicago, which drew more than 20,000 attendees.
For decades the mortgage interest deduction has been a cornerstone of the housing market and a key protection championed by Realtors and the National Association of Home Builders.
“We’re still amazed that Congress has taken this position,” said Elizabeth Mendenhall, the incoming president of the National Association of Realtors.
Mendenhall told reporters that NAR has mobilized its members to oppose the plan, allocating a $6.5 million marketing budget and activating “tens of thousands” of Realtors to lobby their congressional representatives. “We have a long road on this journey,” she said.
She warned that reducing the mortgage interest deduction would disrupt the market, particularly affecting retirees who rely on that tax benefit.
The proposal would also roughly double the standard deduction to $24,000 for married couples, which would reduce the relative value of itemized deductions such as mortgage interest, said Shad Bogany, former chair of the Texas Association of Realtors and a broker with Better Homes and Gardens Gary Greene in Houston.
“They really neutralized the mortgage interest deduction,” Bogany said, arguing that the change would tilt the tax burden toward homeowners and away from renters.
Bogany, who served as president of the Houston Association of Realtors in 2002, predicted many Texans would face higher taxes under the proposal. “Most people in Texas will pay more taxes,” he said. “This was a deal for the rich. It was not for the middle class.”
Lawrence Yun, NAR’s chief economist and senior vice president of research, described the bill in its current form as a “direct tax hike” on homeowners that would effectively remove homeownership incentives for all but the top 5 percent of filers.
Yun noted the legislation was still preliminary and could change before reaching a final form, but emphasized that homeownership is a broad public interest, not a special interest. “This impacts ordinary people who want to buy a house,” he said. “The tax reform plan enlarges the standard deduction from $12,000 to $24,000 and takes more Americans off the tax rolls. Is this direction we want to go? The incentive to buy a home is less strong. We want tax reform, but do we want to hurt the incentive to buy a home?”
Earlier in the year, NAR analyzed the House Republican blueprint and estimated it could reduce home values by roughly 10 percent and raise taxes on middle-class homeowners by about $815 on average.
Yun argued the proposed changes would discourage homeownership and weaken residential market activity. “This is the wrong way,” he said. “It would choke off demand and greatly diminish the attractiveness of home buying.”
He added that eliminating or reducing other itemized deductions would lead more taxpayers to claim the standard deduction instead of itemizing mortgage interest, which would further depress home values.
“Eliminating or nullifying the tax incentives for homeownership puts home values and middle class homeowners at risk, and from a cursory examination this legislation appears to do just that,” current NAR president William Brown said in a statement.
The draft law would also remove the mortgage interest deduction for vacation homes, though many vacation property buyers purchase those homes with cash.
Markets with higher-priced homes stand to be particularly affected by lowering the mortgage deduction cap to $500,000. In California, for example, a significant share of homes in San Francisco, Los Angeles, San Diego and Sacramento are priced above that threshold.
“We are opposed to it and anything that harms the attractiveness of home ownership,” Yun concluded.