The last couple months we have seen the MBS market accelerate its sell off.  The question is: where will it end or settle out? The FNMA 4% coupon chart looks to a 4 year support level at 101.56.   Since last September we have lost nearly 350bps, with 230bps peeling off in just the last 2 and half months.  To get to the 101.56 support level the market still needs to shed 75BPS leaving mortgage rates to increase another .125-.25%.  If you are looking at buying or refinancing now is the time to lock in a rate.

Disclaimer: This guide is not meant to be a resource for tax advice but instead a resource for basic information concerning only certain aspects of the new tax code and how they may impact the real estate market. You should get tax advice from your accountant or tax preparer who will explain how the entire tax code will affect your personal return.

This information comes immediately after the new tax code became law. Some of the information may be revised as the analysis of the new law evolves.

When the tax code was originally being overhauled by the House and the Senate, there were three major proposals being considered that would have substantially impacted the residential real estate market:

• Changing the requirements for the exclusion of gain on the sale of a principal residence
• The reduction on the limit of the Mortgage Interest Deduction (MID)
• The elimination of the State and Local Tax deduction (SALT) which includes property taxes

Let’s look how the tax code has evolved from the original proposal, and decipher what impact experts believe it may have on the housing market.

2. Mortgage Interest Deduction

Original Proposal: Reduce the limit on the mortgage interest deduction (MID) amount from $1,000,000 to $500,000.

The New Tax Code: Reduces limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. Current loans up to $1 million are grandfathered.

Impact on the Market: Assuming a 20% down payment, this reduction in the MID will impact buyers that are purchasing a home between the prices of $938,000 and $1,250,000. Any home under the lower price is still covered and any home over the higher price was not covered under the former tax code either.

What does that mean to the market? Experts disagree. Calculated Risk’s Bill McBride:

“I think the impact of reducing the MID from a maximum of $1 million in mortgage debt to $750 thousand in mortgage debt will have very little impact on the housing market.”

On the other hand, Capital Economics claims:

“The impact on expensive homes could be detrimental, with a limit on the mortgage interest deduction raising taxes for those that itemize.”