WASHINGTON, DC – JULY 2: Kalorama Triangle boosts historic row houses along Columbia Road NW that are photographed July 02, 2017 in Washington (Photo by Katherine Frey/The Washington Post) (Katherine Frey/The Washington Post)
The steady increase in housing prices in many of the nation’s priciest markets, including the Washington region, is expected to slow in coming years, analysts say, as the Republican tax bill begins to reshape a major part of the American economy.
For generations, the tax code has subsidized homeownership, particularly for people in the upper-middle-class and beyond. The Republican tax legislation, however, pushed in the opposite direction, scaling back subsidies once thought untouchable.
To pay for other tax cuts benefiting individuals and corporations, the GOP tax plan trims the mortgage interest deduction and property tax deduction, which combined allow some homeowners to take tens of thousands of dollars off their taxable income.
The law allows interest to be deducted on mortgages only worth up to $750,000, instead of the previously existing $1 million limit (people who got loans before Dec. 15 are grandfathered into the $1 million limit). It also put a $10,000 cap on the amount of state and local taxes, including property taxes, that can be deducted from the federal return.
Economists and housing experts broadly agree the changes will slow price increases in expensive housing markets — though nobody expects housing value to decline given the overall strength of the economy and the fact that there are relatively few houses for sale in top markets.
Still, experts debate about who wins and loses from the changes, and the reality may turn as much on perception as on the fundamental economics.
Bonnie Casper, a real estate agent with Long & Foster in Bethesda, says she thinks the new rules will put a lot of prospective home buyers in wait-and-see mode, which could prompt a slowdown in the market.
“If they’re not going to have a tax benefit, maybe they’ll go rent and not buy,” Casper said. The tax overhaul “could hinder first-time buyers in particular, and then have a cascading effect.”
Edward Pinto, a housing expert at the American Enterprise Institute, says lower housing prices will prove attractive to first-time home buyers who might have felt exasperated by the rapid increase in home values in recent years.
“Existing homeowners have benefited from that on the backs of first time home buyers,” Pinto said.
Housing prices have been increasing by about 6 percent a year over the past five years nationally, according the Standard & Poor’s Case-Shiller index. Economists now expect these areas to see some slowdown in coming years as the GOP tax, particularly in pricier regions like the Northeast Corridor, parts of the West Coast and Florida, and a number of Midwest cities.
Mark Zandi, chief economist at Moody’s Analytics, a research firm, estimates that in the New York metropolitan region, some counties could…