AAA  Nov. 2, 2017 4:32 PM ET
Homebuilders gloomy, asset managers relieved over tax plan
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(AP) — Proposed changes in the GOP tax plan could affect homeowners in more expensive neighborhoods and car buyers interested in electric vehicles. Future retirees and asset managers are happy about a change that didn't materialize. A look at how the GOP tax plan could impact certain industries:


The tax plan contains some unpleasant surprises for those thinking about buying a new home, particularly in high-cost areas. As a result, shares of homebuilders dropped, with luxury homebuilder Toll Brothers leading the decline.

The plan would limit the mortgage interest deduction on newly purchased homes to the first $500,000 of the loan, instead of the present $1 million limit. The plan also caps the deduction for property taxes at $10,000. Svenja Gudell, CEO of housing data provided Zillow, said the changes could raise the tax bill for high-income homeowners in high-tax states, such as New York, Florida and California. Jerry Howard, CEO of the National Associated of Home Builders, said any slowdown in the housing market in those states could put other markets at risk.

Toll Brothers dropped 5.2 percent, while Lennar and Hovnanian fell more than 2 percent. Other homebuilders saw smaller declines. Up until Thursday, most homebuilders have posted impressive gains so far this year.

The proposed changes also hit shares of home improvement retailers. Lowe's fell 3.2 percent and Home Depot slipped $2.84, or 1.7 percent, to $162.54.


Car buyers might be less charged up about electric vehicles. The plan eliminates a $7,500 federal tax credit for buyers of electrics after the current tax year. Industry analysts and environmental groups quickly predicted a plunge in EV sales. Even with the credit, electric vehicles are less than 1 percent of U.S. auto sales, and that's likely to decline further.

"If you eliminate the tax credit, it's going to be a big whack to electric vehicle sales," said Gartner analyst Michael Ramsey.

Eventually the cost of batteries will come down so much that EV sales will rise without tax credits, said Xavier Mosquet, a senior partner at Boston Consulting Group. He predicts that EVs will be comparable in total ownership costs to gas-powered vehicles between 2025 and 2030. Electric cars require no fuel and less maintenance than gasoline cars.

And it's not for certain yet that the credit is gone. General Motors said in a statement that it will work with Congress to keep the incentive.

Shares of electric car maker Tesla Inc., which on Wednesday reported its worst quarterly loss ever, plummeted 8 percent.


Future retirees as well as asset managers exhaled after House Republicans decided to leave the 401(k) retirement account alone.

Congress had been considering changes that investors feared would cause workers to sock away less in retirement savings each year. Such a change would mean smaller flows into the mutual funds and exchange-traded funds run by T. Rowe Price, BlackRock and other asset managers, reducing the fees they could earn.

Currently, workers under age 50 can contribute up to $18,000 in a 401(k) account annually on a tax-deferred basis. Older workers can delay taxes on even more, with a pretax contribution limit of $24,000.

Congress had reportedly been considering curtailing the annual pretax limit to as low as $2,400. The average worker funneled $5,850 of their paychecks into a 401(k) over the 12 months through June, according to Fidelity. At plans for which Vanguard keeps records, 10 percent of participants contributed the maximum last year.

After House Republicans said they wouldn't touch 401(k) accounts, stocks of asset managers climbed. T. Rowe Price gained 1.7 percent, and Franklin Resources climbed 1.2 percent, for example. while BlackRock rose 1 percent.

Associated Press
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