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Could Republicans’ tax reform hurt Sacramento-area home sales?

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The Indiana Pacers player has put his 5,183 home on the market for $1.475 million.

Sacramento homebuilders and real estate agents are worried about a plan to reduce the amount of mortgage interest that homeowners can deduct from their federal taxes.

Proposed by Republicans in Congress last week, the plan would mainly affect those who borrow between $500,000 and $1 million to buy a home. Such sums are far more common in wealthy coastal California than in Sacramento.

Yet with prices on the rise in the Sacramento region, it’s becoming more common for middle-class families to purchase homes for $600,000 or $700,000. The Republican tax plan would put them at risk of losing some of the tax benefits of larger mortgages, possibly as soon as next year.

“Anything we do to remove a financial incentive is going to impact purchasing power for some buyers,” said Pat Shea, president of Lyon Real Estate in Sacramento.

Under the plan, new homebuyers would only be able to deduct interest on the first $500,000 of housing debt. The current cap is $1 million. People who already own their homes would be “grandfathered in” at the higher limit.

In many parts of the country where homes are more affordable, the change would be of little concern. In California, which has among the nation’s highest housing costs, it could cause a bigger stir.

The median home price in Los Angeles is $633,400, according to Zillow. In the San Francisco metropolitan area, it’s $865,400, the real estate tracking firm said.

Sacramento County’s median home price is $338,700, but in a number of neighborhoods and suburbs – including Davis, El Dorado Hills and Granite Bay – prices for resale and new homes can easily exceed a half-million dollars.

Nick Sadek, a real estate broker known for representing high-end clients, said he isn’t worried too much about disruption from the tax overhaul in the short term. The market is competitive enough that buyers are mainly concerned about securing a home and aren’t likely to be dissuaded.

“It’s a sellers’ market, and buyers are having a hard time finding the right home,” Sadek said. “Their priority is to get into a home they can afford.”

In the long term, however, taking away the tax benefits of borrowing more could affect the region’s housing market, he said. For instance, it could prove a disincentive to move for those receiving the current tax breaks.

Some builders see a potential domino effect. David Ragland, vice president of homebuilder Anthem United in Northern California, said his company just finished projects in Lincoln and El Dorado Hills with homes priced near $1 million.

Next up for the builder are houses in the $600,000 to $700,000 range, he said. Even with a sizable down payment, borrowers could still end up with mortgages of more than $500,000.

Removing a tax incentive to buy a more expensive home is “going to have a significant impact,” Ragland said. “In California, the narrative is we have an affordable housing crisis. This is not going to help homebuilders to do their business.”

Shea, with Lyon, said the large majority of sales in the Sacramento area remain under $750,000 – though what used to be considered the move-up range, roughly $400,00 to $750,000, is “now one that pretty much behaves like entry level used to,” he said.

At 4 percent interest rates, higher-priced homes are within reach of many middle-income families. Homes priced below $400,000 are scarce and highly sought after by first-time buyers and landlords.

Shea said those who’ve already entered the real-estate market should think about buying before the proposed changes in Congress can be enacted.

“Anybody that’s already in the process will definitely want to accelerate that before it takes places,” he said.

Hudson Sangree: 916-321-1191, @hudson_sangree