Despite cheers from industry groups, it may take some time for the new tax law to reach the housing market.
“We’re looking forward to seeing you in the future,” said Stephen Cates, CFP, Bankrate’s financial analyst. “Mortgage fees and prices are the biggest issues right now, and I don’t think that will directly affect them.”
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The change is stubbornly keeping mortgage rates up and ongoing appreciation, keeping home buyers out of the market. Bankrate data shows that the National Association of Realtors remained restrained in May, with the National Association of Realtors having averaged 30-year mortgage rates exceeding 6.5% since October.
Meanwhile, Bankrate recently discovered that buyers need an annual household income of $117,000 a year to buy a typical home today, which has grown by nearly 50% from five years ago.
But by creating many provisions from the perpetual tax law of 2017, the bill eases some degree of economic uncertainty, says Phil Crescenzo Jr., vice president of the Southeast of the National Mortgage Corporation.
Cates agrees: “Indirectly, certainty added to businesses can help the labor market, and the increased speed and level of recruitment can bring more to home buyers than anything else.”
In the long run, here are three other ways the bill can be rolled out for home buyers and homeowners.
1. Mortgage fees rise – or fall
Home buyers may not be feeling the impact of the bill right now, but they may bear the cost of a mortgage in the future. The Non-Participation Committee for Responsible Federal Budget previously estimated that the bill would increase interest rates on many forms of credit, which would increase by 0.34 percentage points over the next decade. Meanwhile, it could increase your average new mortgage payments by more than $1,450 per year.
But if the bill causes economic growth, it could reduce deficit spending and ultimately lower Treasury yields and mortgage rates, says Ed Pinto, senior fellow and co-director of the Housing Center at the nonpartisan American Institute of Businesses.
“I rate this as a 50-50 chance,” says Pinto.
2. Contrary to the housing shortage
Some provisions could help expand housing inventory, according to Dr. Daniel Zanzalali, an assistant professor of economics at Seton Hall University. The bill locks in LiHTC, a low-income housing tax credit or a federal tax credit for developers that create affordable rental housing for low-income households. It also expands deductions and incentives for single-family and multi-family developers.
Following the Senate text of the bill, Buddy Hughes, chairman of the National Association of Housing Builders, said:
Furthermore, the bill expands the opportunity zone. “A positive move for business owners and real estate investors,” says Cressenzo. Opportunity Zone was established in 2017 to encourage investment in difficult regions.
“For residents of these areas, (opportunity zones) can bring new housing, amenities and jobs,” said Pete Carroll, executive vice president of public policy and industry relations at real estate data company Cotality.
“Though these federal incentives support housing development, meaningful advancements rely on local zoning reforms and reduced red tape,” says Dr. Zanzalari.
3. Savings for some homeowners
At the individual level, the new tax law hikes the maximum salt deduction limit valid from 2025 to 2029 from $10,000 to $40,000 (in 2030, the cap will return to $10,000). Before the 2017 tax law, there was no limit on how many taxpayers could deduct under the salt deduction.
According to an analysis by Realtor.com, the change from a $10,000 tax credit to a $40,000 tax credit to a $40,000 tax credit would be around $10,500 annual tax savings for 35% tax bracket homeowners.
Additionally, the bill will revive tax credits on mortgage premiums that expired in 2022. Essentially, the average deduction was $1,454, according to the industry association, US mortgage insurance company.
Meanwhile, the bill also permanently limits mortgage interest rate deductions to their initial $750,000 debt.
“The provision simplifies tax laws and preserves federal income, but reduces potential tax mitigation for middle-income buyers in high-cost areas,” Carroll says.