A new survey from Redfin out Friday reports that more than a year after the historic tax code overhaul, fewer than half of home buyers (47%) say that tax reform has had an effect on their home search.
That's down from 56% last year, when tax reform's effects were still mostly speculative and not yet realized in people's paychecks. The tax reform law lowered the caps on the tax deductions allowed for mortgage interest payments and state and local taxes.
The survey included more than 2,000 U.S. residents who planned to buy or sell a primary residence in the next 12 months. More than 1,800 home buyers responded to the question: "How has the recent tax reform law affected your plans to buy a home?" Results from this survey were compared to more than 1,300 responses to the same question in a similar survey commissioned in March 2018.
The most common tax-reform effect reported by home buyers this year was that they lowered their price range because of decreased benefits on high-priced homes (14%, down from 16% last year).
The survey uncovered significant migration to places with lower taxes, though fewer buyers said they were contemplating the switch. This March, 13% of buyers said they shifted their search to nearby cities with lower taxes, and 9% said they shifted their search to states with lower taxes, down from 16% and 12%, respectively, last year.
This year, 8% of respondents said they are searching for higher-priced homes because the new tax law gives them additional income, down from 17% last year. 11% of buyers this March said they decided to buy a home because the new tax law gives them additional income, down from 19% in the March 2018 survey.
"Last year more home buyers were worried that tax reform would hurt their home buying budgets, but it turns out tax reform wasn't all bad or all good for home buyers," said Redfin chief economist Daryl Fairweather. "Some home buyers, 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 home buyers 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 home buyers earning $150,000 or more, 61% 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.
The largest reported effect on high-income home buyers was that 18% said they have now decided to buy a home thanks to their extra take-home income, but 16% said they are now lowering their price range due to decreased tax benefits on high-priced homes.
New York had the largest share of home buyers who said that tax reform had affected their home search—61%. Home buyers in New York were most likely to have lowered their price range (17%) or shifted their home search to cities with lower taxes (17%). California had the next-highest share of home buyers impacted by tax reform at 55%. The largest effect there was home buyers shifting their search to cities with lower taxes (18%). 13% 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 home buyers whose search was affected by tax reform, each at 24%. Washington, D.C., was just behind with 25% of home buyers saying tax reform had some effect on their search.