How Did the Tax Cuts and Jobs Act Of 2017 Affect the Housing Market?

The Tax Cuts and Jobs Act of 2017 (TCJA) dramatically changed tax law, including how taxpayers deduct the interest on their home mortgages. It narrowed the deduction in several ways, so we would expect new mortgages to be smaller than old ones. But it also raised most taxpayers’ after-tax incomes, which means they had more money to spend on mortgage interest. Our research separately estimates how the TCJA affected mortgages and house prices. We find that the tightening of the deduction reduced mortgages, but the increase in after-tax income offset that effect. We also find that larger mortgages raised home prices. Putting all our results together, we find that the overall effect of the TCJA on home prices was close to zero, although some areas saw small increases and others saw small decreases.