These NJ Housing Markets Will Suffer Most Under Tax Plan: Moody's

New Jersey's housing markets could suffer the most under the Republican tax-cut plan that's expected to be passed within the next week. Indeed, 15 of the 30 counties that could suffer the lowest drop in housing prices are in New Jersey, according to Moody's Analytics.

In a report released last month, Moody’s Analytics chief economist Mark Zandi said the House and Senate tax reform plans will lift stock prices but reduce house prices. The tax law changes significantly reduce the value of the mortgage interest deduction and property tax deductions that many New Jerseyans enjoy.

"The higher mortgage rates that result from the higher deficits and debt under the plans weaken housing demand," wrote Zandi in a report called "Tax Reform Wild Card." Moody's has a team of economists that consult investors.

Under the plan, New Jersey will likely see double-digit declines in housing prices, while the average hit to national house prices is estimated to be 5 percent, according to Moody's. The impact on house prices is much greater for higher-priced homes, especially in parts of the country where incomes are higher, Zandi wrote.

The two counties hurt more than anybody in America would be Essex and Union counties, which could experience 10.5 percent drops, according to Moody's. Passaic could have the fourth worst drop at 9.6 percent, according to Moody's projections in a related report published by Slate.

Following Passaic would be Hunterdon, Gloucester and Mercer, tied for 7th, at 9.4 percent; Somerset and Bergen, tied for 10th, at 9.3 percent.

Camden comes in at 13th place on the list, at 9 percent, followed by Morris, 15th, at 8.6 percent; Burlington, 19th, at 8.2 percent; Sussex, 20th, at 8.1 percent; Middlesex, 22nd, at 7.8 percent; Warren, 27th, at 7 percent; and Monmouth, 28, at 6.9 percent.

The Moody's report provided a chart showing which counties would be hardest hit.

The bill that will likely be passed by the House and Senate preserves seven tax brackets, but changes the rates. Republicans who support the bill say the legislation will stimulate an economy that has undergone weak growth.

The tax plan also nearly doubles the standard deduction but eliminates personal exemptions and caps the state and local tax deduction - an element that's expected to hit New Jersey, which has the highest property taxes in the nation, hard.

To Moody's, the impact on the broader national economy of the higher stock prices and lower house prices "is largely a wash," Zandi wrote.

Zandi said the House and Senate tax plans will "significantly exacerbate the nation’s fiscal problems."
On a static basis, Zandi said the tax plan will cost taxpayers $1.5 trillion over the next decade. He said a tax plan that adds significantly to the government’s debt load is "bad policy."

"Though there are economic benefits on revenues from the lower marginal rates, they are not sufficient to pay for the cuts," he said. "Government borrowing thus increases, causing interest payments on the accumulating debt to rise."

Read the whole Moody's report here.

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