The Tax Cuts and Jobs Act put into effect at the beginning of 2018 was forecasted to drag down home prices, but this has not happened.
Economists now say that the only drag on the housing market stemming from the Trump tax cuts are related to changes to state and local tax deductions. Zillow senior economist Aaron Terrazas explains that homeowners in certain markets who use the SALT deduction, “are giving up hypothetical money that otherwise they would have had,” rather than losing money outright.
Yet, the housing market's health remains in question. In a recent meeting, the Federal Reserve warned of a "significant weakening in the housing sector” in the coming months, as residential investment is down, as are the number of new building permits being issued, and construction activity has "softened somewhat," possibly due to rising mortgage rates, limited land availability, labor costs, and tariffs on building materials, The New York Times reports.
Economists caution that the changes might have a larger effect in an economy where housing inventory is more plentiful, or where income growth is slower and consumers worry more about tax preferences when making buying decisions. A dent on prices “will show up over time,” Lawrence Yun, chief economist for the National Association of Realtors said. “But when is that time? Will it take one year? Two years? Three years? That is the question.”
