Housing experts are beginning to speak out against the Senate’s newly passed tax reform, saying the bill is bad news for the mortgage finance and housing industries.
In the middle of the night on Friday, the Senate passed a bill to completely overhaul the current tax system. Now, the House and the Senate will have to come to come to an agreement about which tax bill to send to the president's desk.
The House passed its tax reform bill back in the middle of November.
But experts argue that while the House and the Senate will need to compromise on which version of tax reform to send to the president’s desk, they pointed out both bills are aligned on provisions that take away homeownership incentives.
“It's time for homeowners to pay attention,” realtor.com Chief Economist Danielle Hale said. “While the House and Senate still need to agree to a single version of the tax plan, they are already aligned on provisions that take away homeownership incentives for the majority of owners, which we expect to reduce home sales and prices in markets across the country. Homeowners in California, New York, New Jersey and Maryland will be hit hard by the combination of changes in the proposal, which will lead to lower prices and sales in these housing markets.”
“High housing costs in California made it the state with the third highest average mortgage interest deduction, behind Hawaii and the District of Columbia,” Hale said. “Meanwhile, the elimination of the state income tax deduction for individuals will affect taxpayers in Maryland, the District of Columbia, Connecticut, New Jersey, Massachusetts, and Virginia, each of which saw 35% or more of taxpayers take advantage of this provision. Lower priced housing markets will also eventually be impacted as these provisions are not indexed by inflation; thus, the few remaining tax benefits for homeownership will be eroded over time.”
And in fact, experts even argue that the tax reform bill that just passed through the Senate is bad for all middle-class Americans, not just homeowners.
“In the dead of the night, Senate Republicans voted to raise taxes on middle-class families, repeal vital pieces of the Affordable Care Act, lay the groundwork for cuts to Social Security and Medicare, and give a massive payout to corporations and billionaires, including the Trump family and major GOP donors,” MoveOn Executive Director Anna Galland said. “And they did this without even having time to read the 437-page bill. This is a shameful and dangerous mix of corruption, greed, and incompetence.”
But some aspects of the bill improved for those in the housing industry from what the Senate first proposed.
“One potential wrinkle in the tax reform bill seems to have been fixed, and that is the treatment of mortgage servicing rights,” Brent Nyitray, iServe Residential Lending director of capital markets, wrote in his daily note to clients. The tax bill would have made mortgage servicing rights taxable upon creation, which would have been negative for smaller independent mortgage originators.”
“It looks like there was an amendment to eliminate this,” Nyitray said. “Like many things in the tax bill, it will take some time to digest what the provisions were.”
As might be expected, the Mortgage Bankers Association is in favor of this amendment, and praised the efforts of Senate leadership to pass this amendment with the bill. The National Association of Realtors, however, did not offer any form of praise, standing on its claim that tax reform will hurt the future of homeownership. Read more about what these two groups said here.