The 2018 Tax Reform Act passed in Dec 2017 included a cap on the State and Local Income Tax (SALT) deduction of $10k while raising the standard deduction. This SALT deduction limit marginally disincentives buying-versus-renting for high-priced homes in areas with high taxes as homeowners are less likely to benefit from deducting local property taxes. Home sales witnessed a slowdown in high tax East and Midwest cities in H1 2018 versus a year before. Days listed metrics also showed more lengthening in these areas versus others. In contrast, high tax West Coast cities exhibited no signs of influence from the tax reform. The effect may have been masked and even overshadowed by stronger influences from wage growth, population growth, demographics, and the general improvement in the economy. While high tax East Coast and Midwest cities witnessed slower home price growth in H1 2018 than the rest of the U.S., it was a continuation of the trend that existed from before the tax reform. Slowing sales and more days on market likely point to some potential weakening in home price growth in high tax East Coast and Midwest cities relative to the rest of the U.S. That said, it may be too early to measure the full effect of tax reform on housing and the jury will be out until we get more data.

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