The Mortgage Interest Deduction & Charlottesville – Albemarle

Uncertainty is a bad thing for the real estate market. Any market, really.

What impact will the tax bill* have on the Charlottesville area real estate market?

I have never had a buyer tell me that one of the top three motivators for buying a home in Charlottesville or Albemarle was to take advantage of the mortgage interest deduction. The MID is a benefit, sure. But a primary motivator? Nope.

I was working on the following answers, but a client prompted me to dig in sooner.

Q:

I’m sure you’ve been bombarded with lots of questions regarding the new tax rules being proposed (especially mortgage interest write off). Do you have any insight into how that will affect the Charlottesville and surrounding area market?

We have decided that we will most likely be purchasing a different house closer to town in the next 5-7 years so we were wondering if there is anything we should be doing to prepare for that to get to most value from selling our current home?

A:

Should they eliminate the mortgage interest deduction, the greatest impact to the real estate market will be psychological (not least to the perception that the NAR is one of the most powerful lobbies). I suspect MID elimination would be akin to the effect on the market of the $8,000 tax credit from a couple years ago – people are going to buy, people are going to sell, and the proposed tax won’t affect the decisions of that many at all.

If the mortgage interest deduction goes away, I think it will have a brief shock to the market, maybe last 18-24 months or so of prices/volume of sales being affected, and then the market will reset.

My advice: save as much money as you can, so you can have as large a downpayment as possible. Maintain your house as well as you are able so you can maximize the return when you sell.

Of greater concern is interest rates. If those rise, the market will absolutely be affected.

A friend noted:

The biggest concern is that 68% of Realtors think that the MID matters. This is in large part because of NAR’s role in supporting the MID. But…

47% of Americans don’t pay any taxes at all.

Only 1/3 of Americans who DO pay taxes itemize, and 20% of those people don’t have mortgages at all.

If the government extend the time by which people must own a house as a primary residence before selling from 2 out of 5 to 5 out of 7 years, I think we *may* have a bit less inventory on the market, but ultimately, I don’t see that as having much of an impact.

Most people move, buy and sell houses not because of tax implications, but because of life changes. Life happens. People get married, have kids, get divorced, jobs get transferred, schools deteriorate there, so they come here …the mortgage interest deduction isn’t going to change any of those things.

Do you want the confidence to know where you’re going to live for the foreseeable future? Buy a house. Simple, right?

You’ve communicated your thoughts to your representation, right?

 

Here is the House’s tax bill.

 

Related reading


Fun with Data

The NAR have a cool new tool, with data from the American Community Survey, that provides some insight into the Mortgage Interest Deduction in Charlottesville, Albemarle … and all Counties and Cities.

It looks like

  • Nearly 1/3 of Albemarle County taxpayers claim the MID
    • Nearly 20% of Charlottesville taxpayers do
  • Albemarle County taxpayers claimed, on average, about $10K in MID
    • Charlottesville City taxpayers claimed nearly $9K

* or, the “cut cut cut cut” act.

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