New legislation scales back homeownership subsidies once thought untouchable. (Katherine Frey/The Washington Post)

The steady increase in housing prices in many of the nation’s priciest markets, including the Washington region, is expected to slow in coming years, analysts say, as the Republican tax law begins to reshape a major part of the U.S. economy.

For generations, the tax code has subsidized homeownership, particularly for people in the ­upper middle class and beyond. The Republican tax legislation, however, pushed in the opposite direction, scaling back subsidies once thought untouchable.

To pay for other tax cuts benefiting individuals and corporations, the GOP tax plan trims the mortgage interest deduction and property tax deduction, which combined allow some homeowners to take tens of thousands of dollars off their taxable income.

The law allows interest to be deducted on mortgages only worth up to $750,000, instead of the previously existing $1 million limit (people who got loans before Dec. 15 are grandfathered into the $1 million limit). It also put a $10,000 cap on the amount of state and local taxes, including property taxes, that can be deducted from the federal return.

Economists and housing experts broadly agree the changes will slow price increases in expensive housing markets — though nobody expects housing values to decline, given the overall strength of the economy and the fact that there are relatively few houses for sale in top markets.

Still, experts are debating who wins and loses from the changes, and the reality may turn as much on perception as on the fundamental economics.

Bonnie Casper, a real estate agent with Long & Foster in Bethesda, says the new rules will put a lot of prospective home buyers in wait-and-see mode, which could prompt a slowdown in the market.

“If they’re not going to have a tax benefit, maybe they’ll go rent and not buy,” Casper said. The tax overhaul “could hinder first-time buyers, in particular, and then have a cascading effect.”

Edward Pinto, a housing expert at the American Enterprise Institute, says lower housing prices will prove attractive to first-time home buyers who might have felt exasperated by the rapid increase in home values in recent years.

“Existing homeowners have benefited from that on the backs of first-time home buyers,” Pinto said.

With the Republicans' new tax law slated to go into effect on Jan. 1, 2018, there's a short window to take certain steps to lower your tax bill. (Jenny Starrs/The Washington Post)

Housing prices have been increasing by about 6 percent a year over the past five years nationally, according to the Standard & Poor’s/Case-Shiller index. Economists now expect these areas to see some slowdown in coming years, particularly in pricier regions like the Northeast Corridor, parts of the West Coast and Florida, and a number of Midwestern cities.

Mark Zandi, chief economist at Moody’s Analytics, a research firm, estimates that in the New York metropolitan region, some counties could see prices 10 percent below where they would have been without the tax bill by the summer of 2019. The median U.S. county will see a decline of 0.8 percent, he predicted.

“House prices suffer under the tax plan,” Zandi wrote in a recent analysis. “The impact on house prices is much greater for higher-priced homes, especially in parts of the country where incomes are higher and there are thus a ­disproportionate number of itemizers, and where homeowners have big mortgages and property tax bills.”

According to Moody’s analysis, home prices could deflate by 2 percent in the District, 2.5 percent in Montgomery County and 2.3 percent in Arlington County. Loudoun County is most affected in the region, with a projected 2.6 percent decline in prices relative to where they would have been.

By way of example, if the price of a $500,000 home in the District had risen to $525,000 by the summer of 2019, under the new law it would go up only to $515,000, assuming a 3 percent, rather than 5 percent, increase.

“The biggest impact is probably the psychological impact on buyers,” said Lindsay Reishman, a senior vice president with the real estate firm Compass. “We might see fewer transactions, a little less activity for a while.”

ATTOM Data Solutions, a real estate data and analytics firm, found that the District, Maryland and Virginia are among the 15 jurisdictions with the highest percentage of mortgages above $750,000 this year.

According to its data, the District had the most nationwide, with just less than 17 percent. Maryland and Virginia came in at 3 percent. Those figures understate how prevalent high prices are in the wealthier parts of the states.

Two jurisdictions within Virginia had the highest percentage of loans above that threshold; 27 percent of the homes in Falls Church and 20 percent of the homes in Arlington sold for more than $750,000 year.

The new law’s effect on property taxes will affect more than 90,000 homeowners in the Washington region, according to ­ATTOM. Alexandria and Arlington have the greatest percentage of homeowners with property taxes north of $10,000, 12 percent and 10 percent, respectively.

In general, economists say, the tax breaks have tended to boost the price of homes in the past because they effectively made it cheaper to afford a bigger mortgage and a bigger house, which homeowners would then factor into their sales prices.

To Pinto and some housing experts, Congress’s decision to take a few steps back from subsidizing homeownership is welcome news after years of government advocacy of homeownership. Some blame that housing enthusiasm for being one of the forces, among many others, that led to the housing collapse and Great Recession, from December 2007 to June 2009.

This decade, housing companies have been far more cautious about building homes, leading to price increases, and the Census homeownership rate has fallen from a peak of 69.2 percent at the end of 2004 to 63.9 percent as of Sept. 30.

A report by the housing website Zillow has found that 44 percent of homes are worth enough that it makes sense for a homeowner to itemize deductions. Under the new law, the percentage drops to 14.4 percent.

Beyond tweaking the mortgage interest deduction and state and local tax deduction, the tax bill also doubles the size of the standard deduction to $24,000 for a married couple. Taxpayers have the option of taking itemized deductions or the standard deduction.

In the past, the value of the housing deductions may have nudged people into buying homes even when they have been happier renting, Pinto said. Now people have more options.

“They get to make a choice about how to spend their money,” he said.

Others argue that reducing public support for homeownership could have broad social consequences.

“This is one of the shortcomings of the tax bill. Ordinarily, you want there to be ownership, especially of real estate,” said Greg Smith, a certified financial planner at the Wise Investor Group at Baird. “There is a civic good that comes from owning rather than renting.”

Still, Smith says home buyers and homeowners should not get carried away with calculations over the impact of the tax bill.

“It’s easy to be short-term oriented,” Smith said. “If you’re buying a house, hopefully you’re buying a house because you’re going to be there for at least five years, and a lot can happen in five years.”