Homebuilders Slide as GOP Tax Plan Caps Mortgage-Interest Break

(Bloomberg) -- The U.S. real estate industry reeled as the House Republican tax bill proposed capping the mortgage-interest deduction, a long-cherished incentive many Americans have had to buy a house.

The measure would limit the mortgage-interest deduction on newly purchased homes at $500,000 -- a departure from the current cap of $1 million for couples filing jointly, according to a memo written by the House Ways and Means Committee. The National Association of Realtors, which has been wary of the tax plan, said the memo “appears to confirm many of our biggest concerns.”

Shares are tanking on the news, with an S&P index of homebuilders down as much as 3.5 percent, the biggest intraday decline in more than a year. Toll Brothers Inc., the country’s largest luxury builder, was down as much as 7.3 percent.

Homebuilders Slide as GOP Tax Plan Caps Mortgage-Interest Break

Home-improvement companies also fell, with Lowe’s Cos. down as much as 5.7 percent and Home Depot Inc. slipping as much as 2.9 percent. Real estate services company Realogy Holdings Corp., owner of brokerage brands including Century 21 and Coldwell Banker, dropped as much as 7.2 percent.

Restrictions on the mortgage break “would eliminate one of the benefits of ownership for many would-be homebuyers,” Drew Reading, an analyst with Bloomberg Intelligence, said in an email. “The potential threat to homeownership is what is pushing the builders down.”

Lowering the cap to $500,000 would particularly hurt higher-priced coastal markets, which have the highest property values, he said.

The market may be overreacting, according to Jack Micenko, an analyst at Susquehanna International Group LLP. The proposal doesn’t eliminate the mortgage-interest deduction entirely, and the trend of trading up for larger houses is slowing, he said. Homebuilders have been pivoting toward first-time buyers, most of which would fall below the $500,000 threshold, he said.

“People are shooting first and asking questions later,” Micenko said. “There is some good news in here.”

©2017 Bloomberg L.P.