Connecticut and other New England states have a reputation for a higher cost of living. Much of this is tied to the cost of housing. Even so, there are affordable houses on the market, though they are now decreasing in supply compared to expensive homes.
When most people think of the homebuyers purchasing luxury homes, they may think of billionaires and multi-millionaires. However, this is not always the case. Homebuyers bringing in six-figure salaries may also be interested in purchasing more expensive homes.
According to CNBC, there was a 16% decline in the purchase of homes listed for $2 million or more. This is the worst annual decline since 2010. What is even more puzzling is that there has been a 14% increase in the number of luxury homes on the market. In addition to this, the price of luxury homes is falling, while the price of non-luxury homes is going up.
Why is this happening? Experts point to the new tax law. In the past, homeowners had no cap on the amount of state and local taxes they could deduct for their properties. However, the new tax law caps this at $10,000. To avoid paying possibly tens of thousands of dollars in property taxes, homeowners are downsizing. The increased demand for more affordable housing then has the effect of driving its prices upward.
According to CNN Business, anything over $20,000 in property taxes now raises a few eyebrows among homebuyers. Houses with $30,000 or more in property taxes are a lot less favorable. Homebuyers now flood zip codes with cheaper tax rates, especially in states where owning property is more expensive. This is true even when it means moving to a new state. Mass migration away from luxury properties spells trouble for not just luxury home developers, but also real estate agents and high-tax states.