Economist Mike Walden: Impacts of the New Tax Law on Home Ownership

The new federal income tax made several changes affecting the real estate market.  Two of the most important are the limitation of mortgage interest deductibility and the increase in the standard deduction.  What are the expected responses for home ownership of these provisions?

  1. Mortgage interest deductibility now applies only up to $750,000 loan, down from $1 million
  2. So will impact mainly the upper income home ownership market and may reduce home ownership rate there
  3. But some research suggests this will shift more home construction to lower-priced homes, so prices of these homes could drop and make home ownership more affordable for middle and lower income households – particularly because the down payment will be less if the price is less

So new law may help address an issue raised by many – that too many of homes built today are out of the range of many households.