The new cap on the mortgage interest deduction should help the first time home buyer market by forcing sellers to lower prices, at least in the near term.
"Renters who are looking to buy an affordable starter home might find that they have more options now, as the new deduction limit should put downward pressure on home prices, or we should at least see sellers lower their prices in the short term," an analysis from RentHop.com said.
"Nonetheless, this does not mean that it will be easier for low- and middle-income households to buy houses, as high-income households who want to buy can still compete and drive up prices for lower-end properties."
The analysis makes the claim that new caps on the mortgage interest and state and local property tax deductions make renting a better deal than buying a home. Owning a home will become more burdensome so sellers will lower their prices to speed up the process.
"The new mortgage interest deduction has a tremendous impact on the homeownership both at the national and state levels," the report said. "Homes under $1 million will see escalated competition, and buying homes and carrying mortgages will certainly be more burdensome for homeowners. In high-tax states, buyers looking to buy might also choose to purchase properties in nearby lower-tax states, in some ways redistributing cash flow."
The tax change levels the playing field for consumers deciding whether to purchase a home or continuing renting, the analysis said.
"In Manhattan, prices for condos might drop, coinciding with lower demand (as people might postpone buying now that they can no longer carry mortgages). Secondly, since rental property owners get more deductions than homeowners, there might be a slight increase in rental supply from existing homes in the coming year, which could moderate rent growth," RentHop.com said.