New Jersey's home values in some markets could take a 10% hit under the tax overhaul nearing a vote in Congress, according to a new report.
Moody's Analytics said Monday that homeowners in New Jersey and other high-tax states not only would see limits on popular deductions, but also higher mortgage rates.
For some consumers trying to decide whether it makes sense to buy a home, or even move, "this kind of rejiggers that whole equation," said Robert Oppenheimer, the past-president of the New Jersey Association of Realtors, a trade group.
Congress is preparing to vote as soon as today on a bill that would overhaul the federal tax code for the first time in 31 years. At its centerpiece is a dramatic cut in corporate taxes that the legislation's supporters hope will unleash the U.S. economy. See the video above for what is in the latest version of the tax bill.
To make up for that tax cut and others, though, lawmakers are targeting deductions that have been particularly beneficial to New Jerseyans.
* Mortgage interest deduction: Homeowners currently can deduct interest payments of up to $1.1 million of debt. The new bill would allow homeowners to deduct $750,000 on a new mortgage.
* State and local taxes: Homeowners could deduct state income taxes and property taxes. The new bill would allow them to deduct up to a total of $10,000 in state and local taxes.
The timing adds a kink to the plans of Joe Gorga. He put the Wall Township home where he has lived for the past 32 years on the market two weeks ago and wants to move to a smaller home nearby.
The price is listed for $895,000. The property taxes are $12,000. But he is confident that consumers buy homes first and foremost as a place to live and raise their families, rather than for any tax advantages.
He said he has had several inquiries from prospective buyers in Northern New Jersey and New York who aren't likely to be phased by high property taxes.
"I don't think it's going to have a direct impact," Gorga said. "Certain people on the borderline of affordability are going to look at tax deductions. But home ownership, I think, is an advantage."
The federal tax bill adds another hurdle for a New Jersey housing market that has recovered slowly since the real estate bubble burst in 2008.
New Jersey's rate of mortgages that are 90 days past due has been twice the national average nearly for the past seven years, according to the Consumer Financial Protection Bureau.
New Jersey is a judicial foreclosure state, meaning the court intervenes in the process. It gives residents a better chance to keep their homes, but it can take lenders three years to foreclose.
Still, New Jersey home values were up 3.8% the past year. Monmouth County was up 6.1% the past year. And Ocean County was up 4%, according to Zillow, an online real estate company.
The Moody's report raised concerns about the bill's economic impact.
It said the $1.5 trillion, 10-year tax cut will pump up the economy for the rest of the decade, but it would eventually add little growth to the economy and add significantly to the government's debt.
While the plan could lift stock prices, it also could weigh on housing values. Nationwide, prices could be 4% lower than they would have been without the legislation.
But the impact would be greater in high-tax states like New Jersey, where some homeowners would no longer get to deduct all of their state income and local property taxes, Moody's said.
Another wild card: Interest rates could rise if the government has to borrow more money to finance the tax bill.
Essex County, for example, "could see house prices reduced by as much as 10% compared with what they would have been otherwise," the Moody's report said.
New Jersey Rep. Tom MacArthur, a Republican and proponent of the bill, said he would vote for the final version. He noted more than half of his constituents don't itemize their deductions and would benefit from a provision that doubles the standard deduction.
Meanwhile, Rep. Frank LoBiondo, also a Republican, said he would vote no.
"While improvements have been made from the House-passed version...the $10,000 collective cap on state and local income tax and property tax deductions will be detrimental in my high-tax state of New Jersey," LoBiondo said in a statement.
What becomes of New Jersey's housing market would be a wild card.
One grim scenario: It would accelerate the migration of high-income New Jerseyans to other states, which have lower taxes and aren't fretting over the change.
The impact wouldn't stop there. The slowdown in home sales would ripple through the economy, hurting contractors and home furnishing stores that get a jolt every time a home is sold.
"Maybe New Jersey ought to take a fresh look at our overall tax structure and find ways to reduce the local property tax reliance and shift to broader-based (system) like sales taxes or corporate taxes so you get more people able to take advantage of that $10,000 cap," said Peter Reinhart, director of the Kislak Real Estate Institute at Monmouth University in West Long Branch.
"The deep concern is that New Jersey, already a high-taxed state, will have even higher taxes and will that accelerate people leaving the state?"
Real estate professionals, though, hope consumers will purchase a home not because they view it as an investment or a nice tax break, but because they need a roof over their head and want to put down roots in a community.
"The big question is what kind of roof do you need over your head?" Oppenheimer said. "People will always move and be comfortable with what they can afford."
