No, it will cost them less, because the value of the mortgage interest deduction is baked into the price of the house. It'll also be more fair. The perverse thing about the mortgage interest deduction is that it benefits you more the more money you make.

I'm a little confused about this. I can understand this in terms of college (i.e., no one pays the sticker price so the prices are elevated, etc.).

But for housing, especially in very competitive markets, I feel that things will prove different. Already, successful house purchases come in above the offering price (from what I've seen) in the Bay Area. Do you think the loss of mortgage interest deduction will lead sellers to decrease their asking prices?

Say my marginal dollar is taxed at 40%, and I buy a house valued at $500,000. That value includes not just the house, but the value of the tax deductions. Over the first 10 years at 4% interest, I pay about $17,500 in mortgage interest, which make the value of the tax deductions about $7,000 per year, or $580 per month. If you get rid of the stream of tax deductions, you're lowering how much the house is worth to any buyer who has labor income and will be financing the house (i.e. almost everyone).

Indeed, for almost all houses (even in the Bay Area), people count on the tax deductions to determine how much house they can buy. If you can afford to pay a net $1,800 per month, for example, you can buy a $500,000 house (with a $2,400 monthly payment) given the roughly $600 per month in tax breaks. If you get rid of the tax deduction, you can no longer afford a $500,000 house, and neither can all the other people who previously had a $1,800/month budget. In the long run, that drives the value of the house down by the amount of the lost tax deduction.

So if prices do go down, that means property taxes also goes down. So now legacy homeowners get a double tax cut (i.e. they keep the mortgage deduction, and have a lower property tax bill)?

Old properly owners in CA already have a lower property tax bill since they pay on purchase price, not current market price like WA.

It just raises costs. It’s like an interest rate hike, especially in markets where interest only mortgages are common.

The bigger issue is SALT, which is designed to implode local government.

Reduction in demand should lower prices, yes. Either that, or fewer sales.

The reverse - making mortgages cheaper - would also just raise prices.

Or perhaps it will help moderate housing prices and make it easier to purchase a reasonably priced house.