New Jersey Homeowners & Tax Reform

New Jersey Homeowners & Tax Reform

January 11, 2018

Insider info – Market Outlook 2018

Many have been inquiring as to what will happen to area home prices with the new tax reform in place. There’s been a lot of speculation, some gloom and doom, and people scrambling for clarity as we head into 2018 and the busy Spring selling and buying season.  Earlier this week, I attended a special seminar on this held by the Otteau Valuation Group who specializes in New Jersey real estate market valuation and analysis. 

I’d like to share with you some of the discussion points and their insights regarding the outlook for the future of our local housing market in New Jersey — as well as bring up a couple of points they did not cover.  (But as a disclaimer, this is not meant to be taken as tax advice so please seek the counsel of your accountant for your own tax related matters as they pertain to your individual circumstances.)


For many homeowners and those looking to purchase in those areas with higher property taxes – the huge concern is if the new tax law will crush New Jersey home prices!  

Considered here are some important questions:  What will the affect of caps and decreased itemization have on property values? What affect will this have on buyer confidence and demand? Is it a good time to sell or buy?

Is the Sky Falling?

Jeff Otteau of the Otteau Group began with a numbers overview – showing how “generally, NJ homeowners will pay less in taxes in 2018 than in 2017”.

That is because for most earners:
—more income is tax free in 2018.  The tax bracket scales of the percentage owed on income have decreased for most income ranges across the board. 

As an example, as a Married Filing Jointly earner making between $233,350-$416,700 in 2017 the tax bracket was 33% – compared to 2018 in a range of $315,000-$400,000 in 2018, where the tax bracket is now 32%.  

And that is also because for all earners:  The standard deduction has increased.

As an example, in 2017 the standard deduction for that Married Filing Jointly earner was $12,700 — for 2018 it is now $24,000. 

And for those who have children:  The child tax credit has been increased to $2000 per child with higher income thresholds for 2018 before it’s reduced.

That’s all good news

But in considering the decrease in itemized deductions for home ownership: 

Here in NJ, where there are higher property taxes, there will be much less benefit for those in the higher property tax areas compared to those paying less property taxes elsewhere.  (i.e. Essex County NJ vs. southern NJ or properties in Florida). “If you’re doing well…if you have a higher-value house and are paying more in state taxes because your income is higher, and you pay $20,000 in property taxes and $10,000 in state income taxes, the law says the extra $20,000 is on you,” Otteau said.

1) Mortgage Interest – cap has decreased
(pre-existing debt and binding contracts prior to 12/15/17 are grandfathered)

2) Home Equity Lines of Credit – no longer deductible 

3) State & Local Taxes (SALT) – these have gone from fully deductible to being capped at $10,000.  (NJ also caps property tax deduction at $10,000)

4) And other changes include Personal exemptions such as yourself/spouse/dependents – have been suspended

For most earners however, those reductions/eliminations for owning a home are balanced out, Otteau deduces, with the new tax rates and standard deduction and child care credit.  So if you are an earner in the modest to mid range – that should be a benefit to you.  For those in the higher incomes, you will pay a bit more.  Even for those in the high property tax areas, “there’s no reason to panic here,” he concluded.  

Property Values – Boom or Bust?

He went on to describe how he had heard some bold predictions about house prices collapsing and losing 10 to 15 percent.  And stated “There’s no basis for that.”  

The Otteau Group projected NJ home prices last Spring 2017 through 2022 – and compared their projections to a new forecast after Tax Reform through the same period.  

In general, Otteau predicts values will continue to rise yearly through 2022, however, at a lower percentage rate than previously projected, as would-be new homeowners take a step back to assess what it means to their bottom line. 

The most immediate affect due to buyer hesitancy will be felt in the first quarter of 2018 and home sales are predicted to be sluggish, he predicts.

“I expect house prices will stall here in New Jersey in the first quarter of the year because of the pullback in buying, because people are just really confused about how this is going to play out,” Otteau said.

Spring Real Estate Market?

As a result, Otteau predicts that the Spring real estate market is likely to have a late start. Houses in some areas may spend more time on the market.

Generally speaking about New Jersey, “Sellers aren’t going to benefit from being on the market early because they’ll be rushing their way into a traffic jam”. So for some homeowners who list their homes for sale in January or February are likely to see their homes sit unsold for longer than average periods. 

For those properties coming on the market, sellers need to have a price that “generates excitement and a sense of urgency” Otteau said – this will be critical to attracting buyers.

And this will particularly be true should interest rates go up, decreasing some buyer affordability.

The Outlook

With an optimistic take on the new tax law in relation to NJ home values – Otteau pointed out that the unemployment rate was at a 44 year low and the jobs market outlook strong, along with the probability for increased growth in the economy.  For him, his analysis lead to the positive when considering home value and growth in the Garden State.

Things to Consider

–While in this seminar, New Jersey was discussed as a State overall, no specific area’s supply and demand was taken into consideration nor the fact that properties in some communities continue to see multiple offers, just listed after the first of 2018!

–Mortgage Interest rates are expected to increase in 2018.  Some predict there may be three rate increases during the year, with interest rates climbing 1/4 to a 1/2% higher.  And for some buyers, that will affect their affordability for a purchase on a home. Otteau calculated that for every 1% rise in the interest rate, the price of a home becomes 9% more expensive for a buyer. 

–But while Interest rates are predicted to increase – with that, some ready buyers may be eager to secure their purchase, before interest rates rise. The first week of the year saw a 8.3% increase in mortgage applications from the previous week. 

–Not everyone will benefit from the new tax reform. “This tax law is specifically favorable to households of modest means,” Otteau said. The tax law’s impact on high-income, high-value homeowners will be less beneficial, particularly for single filers with no dependents. That may affect high-end condo areas historically attractive to single purchasers.  

–During this period of uncertainty, some would-be buyers may decide to continue renting instead of buying to see how everything sorts out.  A demand for rentals could really pick up, creating a boon for residential investment property owners. 

–Of longer term concern is whether younger people will be motivated to become homeowners without the housing tax incentives that have long been in place. Over time, the new tax law may result in a “little less demand for home buying because you get a $24,000 (standard deduction for married couples) off the top,” Otteau predicted. 


But as one considers home ownership and an investment over the long term – it’s important to take into consideration that the decision to purchase a home stems from a very complex set of criteria — and the new tax reform is not going to short circuit housing demand.  “The value of what you buy is still going to rise and it will be yours, something you own, a place of your choosing and you’ll have permanence.”

Here are some recent articles with varying perspectives:  Forbes.comNational Association of RealtorsCNBCWashington Post.

Have questions? Are you or do you have a friend, family member or co-worker looking to buy or sell?  Contact me for the latest information. 

Certified Luxury Home Marketing Specialist
Keller Williams – NJ Metro Group
Mobile: 917-596-3508

Office: 973-783-7400


Give me a call or send an email if you'd like more detailed information on either selling or buying!

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