Location used to be the most important thing in real estate, but it may now be the new U.S. tax reform law and how, or if, it will affect buying, selling and investing in real estate markets.

Advisors come down on both sides of that debate: Tax reform will either have a huge impact on real estate or will not be a factor compared with other economic changes occurring in the world. It’s too early to tell, and the impact will not be felt until at least late spring or when people start filing 2018 tax returns.

Leyla Z. Morgillo, an advisor at Madison Financial Planning Group in Syracuse, N.Y., says some clients are already changing plans as a result of the Tax Cuts and Jobs Act signed into law by President Trump in December. “We are absolutely seeing the tax law changes affect our clients and their real estate decisions,” Morgillo says. “One couple who are clients have found themselves shockingly unable to sell their home in the Washington, D.C., area in a very sought-after building. The property sat on the market for months while buyers were frozen waiting for clarity around the tax bill to emerge. Now that the tax changes have gone into effect, they are worried it will continue to be a slow seller’s market. They have decided to pull their property off the market for a few months to see what the response is to the tax reform. In an area that has both high home values and high state and local taxes, the impact on the property value and on the ability to sell could be considerable.”

The new law limits the combined deduction for state and local taxes, including property taxes, to $10,000. In high tax states, that limit can easily be exceeded.

In addition, the new law changed the rules for the mortgage-interest deduction, which was initially enacted to make home buying more affordable. For new mortgages, only the interest on the first $750,000 of a home mortgage is deductible under the new law. Buyers in cities where median home prices easily exceed that amount, such as San Francisco and New York City, are most likely to be squeezed. (StreetEasy reports the median resale price for homes in Manhattan in the fourth quarter was $1.67 million., while Paragon Realty Group reports median sale prices in San Francisco were $1.5 million.) Interest on loans used for vacation homes and for some home equity loans is no longer deductible.

Zillow, a home buying website, says home values in the United States went up 6.7% in 2017 and predicts they will rise 3.2% during 2018 as the tax reform changes settle in.

Kyle Brownlee, CEO of Enid, Okla.-based Wymer Brownlee Asset Management, which serves mostly high-net-worth clients, says the tax changes may have a dampening effect on the real estate market as people realize deductions are changing.

“Within six months, we will have greater clarity on what the tax act will do to the real estate market. For our clients, tax issues are concerning but not life changing,” he says. “But we have been proactive in identifying our clients most impacted by tax reform and to help them handle the mortgage limitations and state tax deductions.”

Brownlee says clients have not yet asked a lot of questions of the firm, but he predicts that will change as people start thinking about buying and selling homes in the spring. The firm may advise some clients to pay down real estate debt if they have funds available rather than buying more or larger property.

Madison Financial Planning Group works with a lot of retirees and near retirees. Morgillo says the tax changes have not yet prompted clients to change their retirement plans. “I would not be surprised to see some of them move to more tax-friendly states when they get ready to retire. Others may have second homes in Florida and decide to make that their primary residence because of the lower taxes.”

The overall effect on the real estate market may be to push it from the current sellers’ market to a buyers’ market, Morgillo says. “Winter is a slow time in the real estate market anyway, but in the spring we may see the market price in the tax changes.”

“We have not seen anyone actually move because of the tax changes, but we have had clients ask about it,” she adds. “The tax law changes will make more work for advisors, but it will also make advisors more valuable.”

Keith Moeller, a wealth manager, advisor and CPA with Northwestern Mutual who is based in the firm’s Minneapolis office, agrees. “It is common after something like this for clients to pick up the phone and ask what they should do. We remind them that their financial decisions should be made as part of a life plan. We do not want the tax tail wagging the planning dog. But some people are thinking what they want to do to avoid high Minnesota taxes now that they may not be deductible.”

One Northwestern Mutual client who Moeller works with is now deciding whether to take a mortgage on a new property or just pay for it outright since not all of the interest will be deductible, Moeller says.

“Another client has a business in Minnesota [which has a relatively high state tax rate] and another business in Arizona, so he is going to declare his residence in Arizona, in part because of the tax-reform changes,” he adds. “In each case, we look at the client’s goals and then decide how to proceed.”

The Tax Cuts and Jobs Act will also affect real estate investments, according to advisors. One of the changes is a deduction of up to 20% for pass-through entities on qualified business income, which means many people investing in real estate may not have to pay income tax on the first 20% of income from the investment.

“Some clients may want to reclassify their vacation homes as rental property or mixed-use property. That is a significant planning opportunity to enjoy a vacation home and still get a tax advantage,” Brownlee says.

Yuen Yung, CEO of Casoro Capital, a real estate investment company in Austin, Texas, says many people are getting excited about investing in real estate. “Financial advisors have an opportunity to help clients by shifting investments to real estate and REITs. The multiple-unit housing sector, student housing, family apartment complexes and senior living homes should be attractive to investors,” he says. “The 20% pass-through should be good for real estate investing. This is a time to think about shifting investing to real estate and REITs.”

Matt Kopsky, a REIT analyst with Edward Jones in St. Louis, feels the 20% pass-through rule is one of the most important changes of the new tax law. “This is a great incentive to invest in real estate. The details are still being worked out, which may keep some investors sidelined for a while, but this is a net positive from the tax reform law. The real estate market may not have benefited as much as some corporations through the changes, but that does not mean there was a negative effect on real estate investments.”

Brett Crosby, chief operating officer and co-founder of PeerStreet, a real estate and alternative investment company in El Segundo, Calif., acknowledges there also may be a downside to the tax changes. “Anecdotally, we have heard these changes will make it 10% more expensive to buy a home, but instead of buying property, the investor could take that money and put it into real estate debt,” he says.

“The tax changes are likely to have a calming or cooling effect on the market, but that is OK with PeerStreet because we do not want a boom-and-bust real estate market,” he says. “This will smooth out the edges of the real estate market a little.”