The Senate tax plan eliminates the state and local tax deduction (SALT) which also allows people to make itemized deductions for property taxes.

That would raise the tax burden on existing homeowners and encourage them to look for cheaper properties, according to Trulia.

This is likely to have the greatest impact in expensive coastal cities where residents pay some of the highest property taxes in the US.

Wage and job growth should continue to support the housing market regardless of changes to the tax code.

Senate Republicans this week released a version of the Tax Cuts and Jobs Act that's different in many ways to the House bill.

One of the differences could upset homeowners in the most expensive coastal housing markets. The Senate bill eliminates the state and local tax deduction (SALT) that allows homeowners to make itemized deductions for property taxes. The House's version of the bill released earlier kept property tax deductions up to $10,000.

"Removing the SALT deduction would incentivize both homebuyers and homeowners to look for less expensive properties since property taxes are an ongoing financial liability for owners," said Ralph McLaughlin, the chief economist at Trulia.

"Like capping SALT deductions at $10,000 in the House plan, removing all SALT deductions would have the largest potential impact in markets where property taxes are high, either because home values are pricey or because property tax rates are. These markets are concentrated in high tax rate Northeastern states, such as New York, New Jersey, and Connecticut, and also pricey states such as California."

Andy Kiersz/Business Insider; data via Trulia

But the proposed changes are not entirely detrimental. At a national level, it would still be cheaper to buy a home than to rent, McLaughlin said.

Also, if the Senate version prevails, the mortgage interest deduction cap would remain unchanged at loans of $1,000,000. The House has proposed cutting the cap on this deduction at $500,000. Homebuilder and realtor trade associations denounced this, arguing that reducing this tax benefit would weaken home prices.

The Senate version is a "positive development," the National Association of Homebuilders said in a statement Friday, even as it remained opposed to the House bill.

"Though the Senate bill provides meaningful tax relief for small businesses and keeps the complete Low-Income Housing Tax Credit program in place, we still believe that maintaining an effective homeownership tax benefit is vitally important," said Granger MacDonald, the NAHB's chairman.

McLaughlin cautioned that concerns about the tax bill's impact on the housing market may be overblown.

"We don’t expect the impacts in these markets to be devastating because the fundamental financial benefits of buying a house compared to renting one doesn’t change enough to make renting a better option," he said. That's partly because existing homeowners may be reluctant to buy better houses if the tax incentives aren't as attractive under the new legislation. That would keep the houses available for sale low, and support prices.

"We expect the fundamentally strong economic forces of job growth and wage growth to continue to support the housing market through these changes if they are passed," McLaughlin concluded.