1. Impact of Tax Reform on Real Estate Market
CoreLogic Connects
Impact of Tax Reform on Real Estate Market
March 14, 2018

2. Residential Real Estate Tax Plan Summary
Loan limit for mortgage interest deduction drops from $1 million to $750,000
Tax deduction for property, state and local income taxes capped at $10,000
Home equity deduction preserved if money spent on home improvement
Tax Legislation Timeline: 2017 Key Dates
November 16: House passes bill
December 2: Senate passes bill
December 15: Revised bill emerges from Conference Committee
December 20: House and Senate pass revised bill
December 22: President signs Public law no

3. Tax Reform’s Impact on Housing Prices
NAR/PwC
Short run: 10.2% price decline (ranging from 8-12% depending on local market)
Long run: Smaller decreases to no impact (depending on supply elasticities)
Major assumptions
Deductible portion of mortgage interest falls from 75% to 15%
Deductible portion of property tax falls from 75% to 0%
Owner-occupied housing stock fixed
Moody’s Analytics
Peak decline 3.7% (U.S. average) in summer 2019
Effect varies by homeowner costs
As much as 11% decline in high-cost counties, 1% increase in low-cost counties
JPMorgan
0.9% decline in home prices at U.S. level; 3.5% decline for homes valued>$1 million
High-cost states decline more: 2.4% decline in CA, NY; 0.4% to 0.5% increase in IN, SD
Assumptions: MITD loan size capped at $500,000, property tax capped at $10,000, state & local income tax not deductible.
NAR/PwC - May 14, 2017 (the two assumptions used to be 75%)
Moody’s – December 18, 2017
JPMorgan – January 18, 2018
Source: PwC, Impact of Tax Reform Options on Owner-Occupied Housing, Prepared for the NAR, May 15, 2017; Moody’s Analytics, U.S. Macro Outlook:
A Plan That Doesn't Get It Done, Mark Zandi, December 18, 2017; JPMorgan, The Impact of Tax Reform on the Housing Market, November 22, 2017.

4. CoreLogic Analysis of Early Impact
Event study: Compare pre- and post-event housing market trend to detect impact
Identify high-cost areas and compare to non-high-cost areas
Average property tax and annual mortgage interest expense by ZIP code
High-frequency, current CoreLogic data
Loan Application
Multiple Listing Service (MLS)
Appraisal
Public Record
Compare recent trend with prior years’ average (benchmark approach)
NAR/PwC - May 14, 2017 (the two assumptions used to be 75%)
Moody’s – December 18, 2017
JPMorgan – January 18, 2018

5. Taxes Highest in Northeast, Loan Amounts Largest in California
Purchase Mortgage Originations > $750K
Source: CoreLogic (2017 annual average)

6. Methodology Top 500 High-Cost Zip Codes
Zips Ranked by Median Origination Mortgage Amount
Zips Ranked by Median Property Tax Amount
Mortgage Interest Amount = Original Mortgage Balance * Interest 4%
Zips Ranked by sum of Mortgage Interest Amount and Property Tax Amount
High-cost zips are based on sum of zip-level median tax amount and mortgage interest amount paid in 2017 (original loan balance times interest 4%).
Select Top 500 as High-Cost Zips
Source: CoreLogic Public Record Data, 2017

7. Top 500 High-Cost Zip Codes
Note: Zips are ranked based on by sum of median tax and interest amount paid in 2017

8. High-Cost Zip Codes in Washington, D.C. Area
15 high-cost zips in Washington, D.C. area out of the top 500 high-cost zips in the nation
Note: Zips are ranked based on by sum of median tax and interest amount paid in 2017

9. High-Cost Areas Purchase Demand Remains Similar to Prior Years
House Bill Passed
Tax Law Passed
Source: CoreLogic

10. Non-High-Cost Areas Purchase Demand Remains Similar to Prior Years
House Bill Passed
Tax Law Passed
Source: CoreLogic

11. High-Cost Home Sale Volume Remains Similar to Prior Years
House Bill Passed
Tax Law Passed
Source: CoreLogic

12. Non-High-Cost Areas Home Sales Volume Remains Similar to Prior Years
House Bill Passed
Tax Law Passed
Source: CoreLogic

13. High-Cost Areas Inventory Remains Similar to Prior Years
House Bill Passed
Tax Law Passed
Source: CoreLogic

14. Non-High-Cost Areas Inventory Remains Similar to Prior Years
House Bill Passed
Tax Law Passed
Source: CoreLogic

15. High-Cost Areas Price Remains Similar to Prior Years
House Bill Passed
Tax Law Passed
Source: CoreLogic Home Price Index

16. Non-High-Cost Areas Price Remains Similar to Prior Years
House Bill Passed
Tax Law Passed
Source: CoreLogic Home Price Index

17. Purchase Appraisals Have Similar Trend to Prior Years
House Bill Passed
Tax Law Passed
1st week Prior Year
(2017)
1st week Next Year
(2018)
Source: CoreLogic

18. High-Cost Areas High End Home Sales Shows No Sign of a Slowdown
Contract volume, based on contract price
Source: CoreLogic

19. Non-High-Cost Areas High End Sales Continue to Trend Higher
Contract volume, based on contract price
Source: CoreLogic

20. Summary
Simulations project home price declines with larger effects in high-cost areas
Our analysis uses an ‘event study’ approach with high-frequency, current data, with a focus on high-cost ZIPs compared with the rest of the market
Purchase demand, home sales, inventory-for-sale, and price in both high cost areas and non-high cost areas remain similar to prior years (but it is early…)
High-end home sales show no signs of a slowdown in either high-cost or non- high-cost areas
We will continue to monitor housing market performance in light of tax reform
NAR/PwC - May 14, 2017 (the two assumptions used to be 75%)
Moody’s – December 18, 2017
JPMorgan – January 18, 2018

21. Where to find more information
Look for regular updates to our housing forecast, commentary and data at
@CoreLogicEcon
@DrFrankNothaft
@TheSamKhater
The views, opinions, forecasts and estimates herein are those of the CoreLogic Office of the Chief Economist, are subject to change without notice and do not necessarily reflect the position of CoreLogic or its management.  The Office of the Chief Economist makes every effort to provide accurate and reliable information, however, it does not guarantee accuracy, completeness, timeliness or suitability for any particular purpose.
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