How Mass. home values could go down if the GOP tax overhaul bill passes

Matthew Cavanaugh for The Boston Globe/File

Will Massachusetts residents lose tens of thousands of dollars in home value if Republicans succeed in ramming their tax overhaul bill through Congress?

The National Association of Realtors says yes. It has estimated that homeowners in the state could lose an average of anywhere from $21,050 to $44,130 in home value, depending on the congressional district they live in.

Nationwide, homeowners are facing a 10 percent drop in values because of the bill, with potentially steeper decreases in higher-cost areas, the group argues.

“Make no mistake, middle-class homeowners will see their home values fall if this proposal moves forward, while large corporations walk away with the bulk of the tax cuts,” the group’s president, Elizabeth Mendenhall, said earlier this month in a statement.


“This is about . . . whether homeowners will have the rug pulled out from under them with a tax system that suddenly favors renting over owning in a big way,” she said.

Others are not as sure as the realtors are about home prices plummeting, citing a variety of other factors, including other changes proposed in the complex tax bill itself.

But first, why do realtors think home values will take a dive?

The House and Senate plans take whacks of varying degrees at the home mortgage interest deduction and the state and local tax deduction, which includes the deduction for local property taxes. (Massachusetts residents used those two tax deductions in 2015 to cut a total of $28.1 billion off their income.)

The general idea is that if the home mortgage interest and local property tax deductions are reduced or eliminated, it will raise the cost of buying a home, and homeownership will be less attractive, thereby depressing property values.

Below is a map provided by the realtors’ group that shows home value declines the group predicts, by congressional district, across the United States.


Massachusetts, according to the group’s estimate, is one of the areas that would be harder hit. And within Massachusetts, the Fifth Congressional District, which includes a number the affluent western suburbs of Boston, would be hit the hardest, with a $44,130 drop in average home value.

Why are some people unsure about the numbers?

Skylar Olsen, senior economist at Zillow, said Zillow thinks the 10 percent drop is an “aggressive estimate.”

Olsen said the realtors’ estimates assume the housing supply will stay the same, and thus when housing demand drops, prices will drop.

However, Olsen said, there are provisions in the tax bill that could put a crimp in inventory. One would grandfather in the home mortgage interest deduction, meaning reductions to it would apply only to people getting new mortgages. That, she said, could encourage current owners to stay in their homes to keep the tax advantage.

Another provision would require people to live in their homes longer before they can sell for a tax-free profit and avoid paying the capital gains tax. That could also keep homes off the market, she said.

Olsen also said that “taxes don’t drive the market. . . . People don’t just buy homes because it pencils out on paper.”

And she said the Boston metro area has a “serious inventory problem” that could keep prices up. “That problem is not going away,” she said.

Vishwanath Tirupattur, US housing strategist for Morgan Stanley, told The New York Times that another force supporting prices could be rising demand for housing among millennials.


Robert Shiller, the Nobel prize-winning Yale economist, also suggested that President Trump could usher in an era of high spending, leading to higher home prices.

“I believe that the effects on homeownership are determined largely by psychology,” he said in an e-mail. “Trump and his Republican congress may set an example of ‘living large’ and may encourage higher prices.”

Mark Zandi, chief economist at Moody’s Analytics, raised the dire possibility with the Times that some homeowners could find themselves “underwater,” with their homes worth less than the mortgages they have on them.

As a general proposition, the tax code subsidizes homeownership, and that has raised home values, the Times noted. Removing the tax breaks should make home prices drop.

But in the end, Olsen said, “Coming up with an estimate of what’s going to happen is very difficult. It’s hard to consider the full picture. Everything is connected.”