Lake County home values hurt most by 2017 tax law

Among about 3,100 U.S. counties, Lake ranks fifth in the damage done to future home values as a result of the cap on property tax deductions enacted two years ago.


Written By, Dennis Rodkin – Crain’s Chicago Business – 10/30/19


Home values in Lake County are among those hurt the most by the 2017 federal tax reform package, according to a national housing economist.

Cook County isn’t far behind, though among Chicago’s metro-area counties it’s taking the smallest hit. That’s in large part because Cook County has the smallest proportion of homes whose property tax bills are over $10,000, the new limit for deducting state and local taxes on federal filings.

Of nearly 3,100 U.S. counties, Lake County ranks fifth for lost home value in the wake of the tax law changes, according to a list compiled by Mark Zandi, chief economist of Moody’s Analytics and published this month by ProPublica. Cook County ranks 36th, putting it in the top 2 percent of the nation’s hardest-hit counties.


Aside from Lake County, all the  counties in the 10 hardest-hit are in the New York City metropolitan area.


The lost deduction will rob Lake County homes of 9.9 percent of what they might have been worth at the end of seven years following the start of the new tax standards, according to Zandi. In the six-county metropolitan area, Lake is followed by McHenry County (8.4 percent), Will County (7.5 percent), DuPage County (7.4 percent) and Cook and Kane counties, both at 6.6 percent.

To be clear: These figures don’t indicate a drop in value, but a measure of how much home value growth won’t happen as a result of the changes in the tax law.

The lost growth is the result of homebuyers calculating the total monthly house payment they can afford, then subtracting a far larger chunk for taxes than they would have if the deduction were still in place, and in the end paying less for a home. The aggregate effect of all buyers of homes with a tax bill of $10,000-plus is a general reset of home values.

“It’s a killer,” said Honore Frumentino, a Berkshire Hathaway HomeServices KoenigRubloff Realty Group agent who focuses on Deerfield, Highland Park and other high-priced Lake County suburbs.

“We’ve always had high taxes in Lake County because of our good schools,” Frumentino said. “We could tell young buyers moving in, ‘Taxes are high, but there’s a deduction.’ We can’t say that anymore. It’s hard to find a house for a family in my area with a tax bill under $10,000.”   

Yet an agent in nearby Lake Forest and Lake Bluff said she hasn’t seen any pronounced effect on home values from the tax changes. “I haven’t heard of anyone looking at the taxes that way,” said Deborah Fischer, who’s also with Berkshire Hathaway HomeServices KoenigRubloff Realty Group. “Mostly what I see is people turning to Lake Forest and Lake Bluff because you get the lowest property tax rates in Lake County and lower than the North Shore towns in Cook County.”

One difference between Frumentino’s and Fischer’s observations may be that buyers shopping in Frumentino’s south Lake County turf can easily compare to bills a short distance south in lower-tax Cook County, while Fischer’s zone is farther north of the county line and her buyers may not be able to shop that far south.  

Zandi’s data shows the difference between where prices would be after seven years with and without the changes. Seven years is the typical life of a mortgage, according to ProPublica, which estimates that across the country, home values will lose a total of about a trillion dollars in potential growth.

Zandi’s calculations include a hit to home values caused by higher mortgage interest rates he says will be forced by the federal government ramping up its spending to cover the deficits the 2017 tax bill causes. As with a reduced deduction, a higher interest rate will trim back what buyers are willing to pay for a house.

Nationwide, home prices will be about 4 percent off what they could have been worth, Zandi estimated, and in almost 1,000 counties, or about one-third of those in his study, the damage to home values will be 1 percent or less.