Tax reform may worsen housing supply issues says Black Knight

by Steve Randall05 Dec 2017
One of the unintended consequences of proposed tax reform legislation could be a further hit to the already-tight supply of homes available.

That’s one of the scenarios highlighted by Black Knight Financial in its latest mortgage monitor report which says that existing homeowners may chose not to sell as they would lose their current exemption from the $500k MID cap.

Black Knight Data & Analytics Executive Vice President Ben Graboske says that almost 3 million first lien mortgages – current mortgage holders -  have original balances exceeding $500K – the cap proposed in the House version of the tax bill.

“These borrowers would be exempt from the limit. We’ve already seen signs of ‘interest rate lock’ on the market, as homeowners with low interest rate mortgages have a disincentive to sell in a rising rate environment,” Graboske warns. “Do these homeowners now also have a disincentive to sell their home in order to keep their current interest rate deduction of up to $1 million?”

Black Knight calculates that low-priced markets will see little effect from the proposed changes but that 22 markets it has analyzed have a median home price above $500K.

It also says that since the bottom of the housing market there has been a 350% increase in the number of mortgage originations at or above $500,000. This sector of the market could see an increase of 48,000 originations for purchase mortgages in 2018 and a total 2.9 million during the first 5 years of the tax plan.

“Even if interest rates stayed steady around four percent, a $500K MID cap could cost the average homeowner with a larger mortgage an additional $2,600 – $4,200 per year depending on their tax bracket, representing a 6 to 10 percent increase in housing-related expenses as compared to the average annual principal and interest payment today,” adds Graboske.

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