A friend writes: “I don’t think eliminating the mortgage interest deduction above that level is going to cause a housing ‘crash,’ for the following reasons. First, many homeowners own their homes outright, or have remaining mortgage balances below that level, so they would not be affected directly. Second, many homeowners or potential homeowners who would now take a mortgage above that amount have other assets that they would use for their home purchase. For example, people who have bond portfolios paying 4% per year would do better by just paying down a mortgage of 5.75%. Third, interest rates (on homes for which mortgages are typically larger than the cut-off) will adjust downward. One plausible result is that jumbo mortgage rates may fall below the rate on conforming mortgages.

“That said, I think some downward home price adjustment is likely, particularly in high price areas. (I would not consider Texas such a place, however, as you can still get a McMansion near Dallas for about $300,000.) I also think home prices are about 15% overvalued anyhow, so we might see a ‘crash’ and blame it on tax reform (or the threat of tax reform) when it was going to happen anyhow.”