The full Republican tax plan, unveiled Thursday, was rejected in various corners of the housing market.

At issue is the mortgage-interest deduction, the cap for which would be halved, to $500,000. This could reduce the benefit of the deduction outside of more-expensive housing markets and hurt home prices, trade associations said.

"You're talking about potentially causing housing recessions," the CEO of the National Association of Home Builders told Business Insider. The National Association of Realtors said the legislation confirmed its biggest concerns.

An exchange-traded fund that tracks the stocks of homebuilders had its biggest decline in a year.



Two powerful trade associations slammed the GOP's tax plan on Thursday, saying the reduction of a key benefit for homeowners could hurt the market.

The plan would cap the mortgage-interest deduction — which allows homeowners to subtract interest payments from their taxable income — on new homes at $500,000. This could dampen the benefit of the deduction outside of the most expensive housing markets and may lower home values.

On Sunday, the National Association of Home Builders, a lobbying group based in Washington, DC, said it would not support the legislation. When the full text emerged on Thursday, it amplified its criticism. "The details that are coming out show that the House Republicans are picking large corporations and wealthy Americans over small businesses and middle-class American homeowners," Jerry Howard, the association's CEO, told Business Insider. Risk of declining

Howard estimated that 7 million homes would be excluded from the mortgage-interest deduction, amounting to about a third of the homes in California.

"You're talking about potentially causing housing recessions in some of the biggest markets in the country, and those kinds of recessions tend to have spillovers," Howard said. "We're worried about a national housing recession."

The trade association had been working with lawmakers to replace the mortgage-interest deduction with a tax credit offering the same incentive.

"The House Republicans have violated the president's charge of doing a tax reform that helps middle America," Howard added. "Values of [Americans'] homes are at risk of declining. Baby boomers ought to think about putting off retirement for a couple of years because they may not have the equity in their homes that they thought they did."

The National Association of Realtors similarly expressed concern that the GOP's plan would hurt home prices.

"Eliminating or nullifying the tax incentives for homeownership puts home values and middle-class homeowners at risk, and from a cursory examination this legislation appears to do just that," William Brown, the group's president, said in a statement on Thursday.

Investors sold off shares of homebuilders on Thursday. The SPDR S&P Homebuilders exchange-traded fund fell 3%, its biggest decline in a year.