The new 2017 US tax code could be to blame for the downturn of the housing market. Data shows that the housing market has slowed significantly in recent months and many attribute that to the caps on homeowners’ deductions in the new tax code. In addition, interest rate hikes have also scared homebuyers off.

Some experts say the new tax code is really only negatively impacting the market of high-end homes, while pushing homeowners to choose more tax-friendly locations instead. With the tax code capping deductions of state and local taxes at $10,000 and instating a $750,000 limit on deductible mortgage debt, homebuyers and potential homebuyers are fleeing high tax areas, such as New York, Chicago, Denver and Washington, in favor of places like Florida where there is no state income tax.

Recent data shows that the home market could be on the rebound. February saw that biggest month-over-month gain since December of 2015 and median home prices of increased by as much as 3.6 percent. Some could attribute this to wealthy potential homebuyers looking in locations, such as Florida, for their next home instead of more pricey locales. This could be creating a new problem down the road, however, by driving up the price and demand on mid-to-low end housing areas.

Key Points:

  • 1Tax reform has increased interest and taxes as well as capping the mortgage deduction related to buying property.
  • 2Fewer people have been buying “high end” real estate because it has become too expensive.
  • 3People are moving to lower taxed or no taxed places such as Florida to avoid this.

The expensive home market will experience challenges due to the curtailment of tax deductions of mortgage interest payments and property taxes.