A recent study finds the changes in the tax laws increased the opportunity cost of buying for new homeowners.

The recent tax reform is likely having a negative effect on the housing market, according to a newly published study by researchers at the Federal Reserve Bank of New York. The Tax Cuts and Jobs Act of 2017 contributed to the recent decline in new housing sales, said Richard Peach and Casey McQuillan, co-authors of the study, in a recent blog post. Several factors may have deterred renters from taking the plunge: the $10,000 cap on the deductibility of state and local taxes effectively increased what buyers have to pay and the lower marginal tax rates for many taxpayers also reduced the tax savings from housing-related deductions. Although new buyers still benefit from deducting home loan interest, the overall incentives to buy is somewhat curtailed. Arguably the slowing is especially acute for higher-priced homes and homes in high-tax jurisdictions. Although not yet conclusive, Peach and McQuillan were able to demonstrate that the changes in the tax laws increased the opportunity cost of buying for potential new homeowners, and therefore played a role in the decline in the housing market. 

Source: Bloomberg