Potential tax legislation may not bring immediate financial aid for property purchasers straight away.
The recently passed "One Big Beautiful Bill" is a comprehensive piece of legislation that could significantly influence mortgage rates and the housing market in the long term. Here's a breakdown of its potential effects:
## Impact on Mortgage Rates
One of the key concerns is the potential increase in interest rates. The nonpartisan Committee for a Responsible Federal Budget estimates that the bill could raise interest rates on various forms of credit, including mortgages, by 0.34 percentage points over the next decade. This could translate to an additional $1,450 in average new mortgage payments annually[2].
However, there's a silver lining. If the bill stimulates economic growth, it might lower deficit spending, which could decrease Treasury yields and, in turn, mortgage rates. This scenario is seen as a 50-50 chance[2].
## Impact on the Housing Market
The bill introduces several measures aimed at increasing affordability and supply. For instance, it restores the tax deduction for mortgage insurance premiums, which can help reduce costs for homebuyers with smaller down payments[3]. Additionally, it expands the Low-Income Housing Tax Credit (LIHTC), potentially increasing the supply of affordable rental housing[3].
Furthermore, provisions like the LIHTC and other incentives for developers could grow the housing inventory, helping ease affordability issues by increasing the supply of housing[2].
However, there are potential drawbacks. The higher state and local tax (SALT) deduction cap might boost demand and prices in areas where affordability is already strained[4]. Furthermore, many provisions are geared towards businesses and real estate investors, which could lead to more residential and commercial development, but may also increase competition for individual buyers[4].
In summary, while the law offers some provisions that could benefit the housing market by increasing affordability and supply, it also poses challenges such as potential higher mortgage rates and increased competition in certain areas.
Other notable aspects of the bill include:
- The bill does not affect the tax deduction for tips and overtime. - The bill introduces a new tax deduction worth up to $2,000 for charitable contributions, even if the taxpayer does not itemize. - The bill introduces a new $6,000 tax deduction for taxpayers aged 65 and older. - The bill makes many provisions from the 2017 tax law permanent, easing some economic uncertainty. - The bill does not affect the electric vehicle tax credit. - The new tax law expands the SALT deduction cap from $10,000 to $40,000, effective from 2025 through 2029. - The average 30-year mortgage rate has remained above 6.5 percent since October. - The bill resurrects the tax deduction for mortgage insurance premiums, which expired in 2022. - The added certainty for businesses might help with the labor market, potentially increasing the speed and level of hiring. - The average deduction amount for mortgage insurance premiums was $1,454, according to U.S. Mortgage Insurers.
While the new tax law is expected to have little immediate impact on the housing market, its long-term effects on mortgage rates and the housing market are still uncertain and will unfold over the coming years.
- The potentially increased mortgage rates due to the "One Big Beautiful Bill" could mean an additional $1,450 in average new mortgage payments annually, as predicted by the Committee for a Responsible Federal Budget.
- Investing in personal-finance might benefit from the bill's positive impact on the housing market, as measures like the restoration of the mortgage insurance premium tax deduction and expansion of the Low-Income Housing Tax Credit could increase affordability and supply.
- The business sector, including real-estate, could experience growth due to the bill's provisions, potentially leading to more residential and commercial development, although this growth might also increase competition in certain areas of the housing-market.
