More than a year after the tax code overhaul, less than half of homebuyers (47 percent) say that tax reform has had an effect on their home search, according to a March survey commissioned by Redfin of more than 2,000 U.S. residents who planned to buy or sell a primary residence in the next 12 months.
Still, 14 percent said they lowered their price range and 13 percent are moving to a nearby city with lower taxes.
The 47 percent who say it affected their home search is down from 56 percent last year, when tax reform’s effects still were mostly speculative and not yet realized in people’s paychecks. Overall, the actual effects on home searches are less significant than people expected them to be a year ago.
“Compared with the effects homebuyers reported a year ago, we saw the biggest drops in the prevalence of buyers indicating that they were better off because of tax reform,” Redfin said in the survey. “This year, 8 percent of respondents said they are searching for higher-priced homes because the new tax law gives them additional income, down from 17 percent last year. Eleven percent of buyers this March said they decided to buy a home because the new tax law gives them additional income, down from 19 percent in the March 2018 survey.”
As to how tax reform is affecting home searches for 2019 and 2018, the survey revealed that the most common tax-reform effect reported by homebuyers this year was that they lowered their price range because of decreased tax benefits on high-priced homes (14 percent, down from 16 percent last year).
“Another prevalent way tax reform has been affecting the housing market is in the form of migration to places with lower taxes, a trend we’ve noted in reports on Redfin.com user search patterns for more than a year,” the survey said. “According to the homebuyer survey, this effect is now slightly less significant than last year’s survey findings suggested. This March, 13 percent of buyers said they shifted their search to nearby cities with lower taxes, and 9 percent said they shifted their search to states with lower taxes, down from 16 percent and 12 percent, respectively, last year.”
Redfin Chief Economist Daryl Fairweather expressed his thoughts on where homebuyer concerns were targeted.
“Last year more homebuyers were worried that tax reform would hurt their homebuying budgets, but it turns out tax reform wasn’t all bad or all good for homebuyers,” Fairweather said. “Some homebuyers, especially in low-tax states, are now paying less in taxes overall, which has left them with more cash for a more expensive home. For others, not being able to deduct as much of their property taxes or mortgage interest from their taxable income was the other shoe that needed to drop to make them pick up and move to a more affordable area. In the long run, we will see demand for luxury homes in high-tax states suffer the most because those homes have been hit the hardest by this tax reform, and there’s actually early evidence of that already happening.”
High-income homebuyers were the most likely to report in this year’s survey that tax reform has had some sort of effect on their home search. Of those homebuyers earning $150,000 or more, 61 percent said that the new tax law had an effect on their home search, which was true for less than half of households earning under $150,000.
“It’s worth noting that people’s opinion of whether tax reform negatively or positively affected them in general and their home search in particular, is likely to be skewed by their overall political leanings,” the Redfin survey said. “New York had the largest share of homebuyers who said that tax reform had affected their home search — 61 percent. Homebuyers in New York were most likely to have lowered their price range (17 percent) or shifted their home search to cities with lower taxes (17 percent). California had the next-highest share of homebuyers impacted by tax reform at 55 percent. The largest effect there was homebuyers shifting their search to cities with lower taxes (18 percent). Thirteen percent of both New York- and California-based respondents said they were moving to a state with lower taxes.
“On the other end of the spectrum, Kansas and Indiana had the smallest share of homebuyers whose search was affected by tax reform, each at 24 percent. Washington, D.C., was just behind with 25 percent of homebuyers saying tax reform had some effect on their search,” the survey added.