As we forge ahead into 2018, the real estate market faces some challenges and opportunities. Key questions you may be asking include: How will tax reform impact housing? What will happen with interest rates? How will the combination of tax reform, interest rates, and other key factors affect home prices? These are complex questions that I address below.
Understanding the Tax Reform Bill
Legislation passed by the Congress and signed by President Trump in the last days of 2017 left many folks - including the "experts" - confused and with conflicting views on the impact. According to the Washington Post, "[s]ome experts are anticipating prices won't rise nearly as fast because of the new [tax] law. Others say it will help first-time buyers enter the market." Washington Post (Article by Kathy Orton, Jan. 8, 2018).
While it's still unclear what the overall impact of the new tax laws will be, it is helpful to understand key components of the legislation since the law directly affects something near and dear - our wallets/pocketbooks! To help unwind confusion surrounding the tax bill, I included in my most recent newsletter two timely articles about the tax legislation. One article provides an overview of key concepts and another drills down into the impact on real estate. (See Ken's Newsletter -the second and third articles in the newsletter discuss tax reform). Of course, it would also be wise to consult your own CPA/accountant to ascertain how you can best maximize your financial position with respect to the new tax laws.
Inventory Levels, Pricing, Interest Rates, and Impact of Tax Reform on Real Estate
Before the tax legislation was passed, most experts were anticipating a continuation of the status quo in the real estate market. Lawrence Yun, the Chief Economist for the National Association of Realtors® (NAR) predicted that home prices would rise about 5.5 percent, "Low supply is pushing prices higher and making home buying less affordable in several parts of the country." Yun also predicted that mortgage rates would climb with the 30-year fixed rate reaching 4.5% by the end of 2018. Javier Vivas, Director of Economic Research at Realtor.com, anticipated a 3.2 percent increase in prices, with a slow down being felt in the higher-priced segments. He anticipated 30-year fixed mortgage rates [rising] to 5% by the end of the year." See Washington Post (Kathy Orton, Jan. 8, 2018).
In a publication hot off the press, NAR has now estimated how home prices will change in the upcoming year for each state, considering the impact of the new tax law and the momentum of jobs and housing inventory. NAR predicts that: "Home prices in Virginia are expected to increase by 1.6% considering the tax impact, current market conditions, interest rate effect, and the employment and construction momentum," and that "Home prices in District of Columbia are expected to drop by 4.8% considering the tax impact, current market conditions, interest rate effect, and the employment and construction momentum." For detailed information about the Virginia and DC forecasts or for information about other states, please check the NAR article, Tax Reform Impact and Home Price Outlook. Each seller and each buyer should be prepared to consider these forecasts in their personal real estate decisions. Each home, neighborhood, buyer, and seller, may be impacted in different ways.
Being armed with knowledge and a good strategy will help you address whatever challenges you may face this year in real estate. Whether getting your home ready to sell or preparing to buy a new home, I'm confident I can help you turn challenges into opportunities. Please just reach out to me. . . I'd love to help.
Wishing all of you a fantastic 2018. Cheers.