Real Estate News

Rates lingering lower thanks to tax turmoil

Published: 15 Nov 2017

Tax reform has been a big idea on Capitol Hill in Washington, D.C., for some time, and it now seems as though lawmakers are working toward proposals that may be able to pass both houses of Congress. However, the idea of "reconciliation" - that is, replacing each dollar of tax revenue lost with a new dollar of tax revenue from somewhere else - is important to keep in mind because if the plans are completely reconciled, then they don't need broad bi-partisan support to pass.

The changes being proposed in the House and Senate are different approaches to the same goal, but both have been a focus for people in the real estate industry, according to American Banker. That's because both would change the mortgage interest tax deduction - long considered an unassailable pillar of the tax code - to generate more revenues. While neither would eliminate the tax break entirely, the House's version caps deductions at properties valued above $500,000, while the Senate's version has a limit of $1 million.

It's therefore likely that lobbyists will throw their support behind the Senate version of the tax reform because it benefits more current and future homeowners.

The ins and outs of paying taxes as a homeowner could soon change significantly.The ins and outs of paying taxes as a homeowner could soon change significantly.

Other tax issues
Meanwhile, another type of deduction that can have a major impact on homeowners and is apparently up for debate is the ability to claim state and local tax bills on federal returns, according to the New York Post. This includes allowing Americans to write off property tax payments. The Senate's proposal would eliminate that allowance entirely, while the House's version of the bill would cap this type of deduction at $10,000.

This issue would potentially be particularly impactful for homeowners in states where there are heavy property tax rates, such as New York or New Jersey, the report said. Despite all these efforts, it remains unclear which of the proposed tax overhauls would actually be palatable to all involved, or if either will be able to pass.

Mortgage rates still stalled
Meanwhile, investor uncertainty over the future of tax reform overall seems to have halted what had previously been a slow but steady increase in mortgage rates. According to the latest industry data from Freddie Mac, rates actually fell in the week ending Nov. 9, after a few weeks of mostly remaining in a holding pattern. Specifically, rates for 30-year fixed-rate mortgages dropped to 3.9 percent from the previous week's 3.94 percent. Similarly, 15-year FRMs dropped to 3.24 percent from 3.27 percent.

Sean Becketti, chief economist at Freddie Mac, noted that these changes came largely as yields on 10-year Treasury bonds, which nearly always move in concert with mortgage rates, slipped as well.

With so much about the future of the mortgage interest and property tax deductions still uncertain, it seems likely that this issue will continue to loom over the mortgage market until some sort of resolution is reached one way or the other.