The average American household is expected to get a $1,610 tax cut this year as a result of the new tax law, according to the nonpartisan Tax Policy Center. While the amount will vary substantially based on income and other factors, the home-search site Zillow got curious about what people might do with that money.
Zillow identified the top two uses: adding to savings and paying off debt.
But Zillow’s interest is, of course, in the housing market. So the focus of their report, to be released tomorrow, is that some of that extra cash may be used for home purchases, at a time when demand for homes is already outstripping supply and prices continue to rise.
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The survey of 10,000 renters and homeowners in major metro areas suggests that, on average, renters will spend about 11 cents of every dollar of the tax cuts on buying or renting a larger home. Homeowners, in the aggregate, said they will spend about 3 cents of each dollar on purchasing a new home, and 14 cents on home renovations.
Here’s how respondents in Phoenix plan to divvy up each dollar of their expected tax savings:
*For homeowners, buying a new home. For renters, buying or renting a new place.
All told, Zillow estimates homeowners and renters will put $13.2 billion of the tax savings directly into the U.S. housing market this year in new purchases or rental upgrades. They’ll spend almost double that amount on home renovations.
“Despite new limits to two longstanding tax benefits for homeowners, the typical American taxpayer saw their tax burden fall in 2018 as a result of tax reform,” said Zillow senior economist Aaron Terrazas. “Some of these tax savings will still find their way into the American housing market, even though they were not explicitly targeted there, as renters and homeowners decide to use their tax savings to rent or buy a bigger home, or renovate their existing home.”