5 Ways Tax Reform Has Impacted the 2018 Housing Market

5 Ways Tax Reform Has Impacted the 2018 Housing Market | MyKCM

Starting late last year, some predicted that the 2018 tax changes would cripple the housing market. Headlines warned of the potential for double-digit price depreciation and suggested that buyer demand could drop like a rock. There was even sentiment that homeownership could lose its coveted status as a major component of the American Dream.

Now that the first quarter numbers are in, we can begin to decipher the actual that impact tax reform has had on the real estate market.

1. Has tax reform killed off home buyer demand? The answer is “NO.”

According to the Showing Time Index which “tracks the average number of buyer showings on active residential properties on a monthly basis” and is a “highly reliable leading indicator of current and future demand trends,” buyer demand has increased each month over the last three months and is HIGHER than it was for the same months last year. Buyer demand is not down. It is up.

2. Have the tax changes affected America’s belief in real estate as a long-term investment? The answer is “NO.”

Two weeks ago, Gallup released its annual survey which asks Americans which asset they believed to be the best long-term investment. The survey revealed:

“More Americans name real estate over several other vehicles for growing wealth as the best long-term investment for the fifth year in a row. Just over a third cite real estate for this, while roughly a quarter name stocks or mutual funds.” 

The survey also showed that the percentage of Americans who believe real estate is the best long-term investment was unchanged from a year ago.

3. Has the homeownership rate been negatively impacted by the tax changes? The answer is “NO.”

Not only did the homeownership rate not crash, it increased when compared to the first quarter of last year according to data released by the Census Bureau.

In her latest Z Report,Ivy Zelman explains that tax reform didn’t hurt the homeownership rate, but instead, enhanced it:

“We have been of the opinion that homeownership is most highly correlated with income and the net effect of tax reform would be a positive, rather than negative catalyst for the homeownership rate. While still in the early innings of tax changes, this has proven to be the case.”

4. Has the upper-end market been crushed by new State and Local Taxes (SALT) limitations? The answer is “NO.”

In the National Association of Realtors latest Existing Home Sales Report it was revealed that:

  • Sales between $500,000 and $750,000 were up 4.5% year-over-year
  • Sales between $750,000 and $1M were up 15.1% year-over-year
  • Sales over $1M were up 17.3% year-over-year

5. Will the reforms in the tax code cause home prices to tumble over the next twelve months? The answer is “NO.”

According to CoreLogic’s latest Home Price Insights Report, home prices will appreciate in each of the 50 states over the next twelve months. Appreciation is projected to be anywhere from 1.9% to 10.3% with the national average being 4.7%.

Bottom Line

The doomsday scenarios that some predicted based on tax reform fears seem to have already blown over based on the early housing industry numbers being reported.

Advertisements

The COST of Your Next Home Will Be LESS Than Your Parents’ Home Was

The COST of Your Next Home Will Be LESS Than Your Parents' Home Was | MyKCM

There is no doubt that the price of a home in most regions of the country is greater now than at any time in history. However, when we look at the cost of a home, it is cheaper to own today than it has been historically.

The Difference Between PRICE and COST

The price of a home is the dollar amount you and the seller agree to at the time of purchase. The cost of a home is the monthly expense you pay for your mortgage payment.

To accurately compare costs in different time periods, we must look at home prices, mortgage rates, and wages during each period. Home prices were less expensive years ago, but paychecks were also smaller and mortgage rates were much higher (the average mortgage interest rate in 1988 was 10.34%).

The best way to measure the COST of a home is to determine what percentage of income is necessary to buy a home at the time. That would take into account the price of the home, the mortgage interest rate and wages at the time.

Zillow just released research that examined home costs using this formula. The research compares the historic percentage of income necessary to afford a mortgage to the percentage needed today. It also revealed the cost if mortgage rates continue to rise as experts are predicting. Here is a graph of their findings*:

The COST of Your Next Home Will Be LESS Than Your Parents' Home Was | MyKCM

Rates would need to jump to 7% in order for the percentage of necessary income to be greater than historic norms.

Bottom Line

Whether you are a homeowner considering selling your current house and moving up to the home of your dreams, or a first-time buyer trying to purchase your first home, it’s a great time to move forward.

*Assumptions in the Zillow report: Buyer puts 20% down, takes out a conforming, 30-year fixed-rate mortgage at rates prevailing at the time, earns the median household income, and is buying a median-valued home.

Should I Buy a Home Now? Or Wait Until Next Year?

Should I Buy a Home Now? Or Wait Until Next Year? [INFOGRAPHIC]| MyKCM

Some Highlights:

  • The Cost of Waiting to Buy is defined as the additional funds it would take to buy a home if prices & interest rates were to increase over a period of time.
  • Freddie Mac predicts interest rates to rise to 4.4% by next year.
  • CoreLogic predicts home prices to appreciate by 5.0% over the next 12 months.
  • If you are ready and willing to buy your dream home, find out if you are able to!

Americans Still Believe Real Estate is Best Long-Term Investment

Americans Still Believe Real Estate is Best Long-Term Investment | MyKCM

According to Bankrate’s latest Financial Security Index Poll, Americans who have money to set aside for the next 10 years would rather invest in real estate than any other type of investment.

Bankrate asked Americans to answer the following question:

“What is the best way to invest money you wouldn’t need for 10 years or more?”

Real Estate came in as the top choice with 28% of all respondents (3% higher than last year), while cash investments – such as savings accounts and CD’s – came in second with 23% (the same as last year). The chart below shows the full results:

Americans Still Believe Real Estate is Best Long-Term Investment | MyKCM

The article points out several reasons for these results:

“After bottoming out at the end of 2011 following the worst housing collapse in generations, home prices have gone gangbusters recently, climbing back above their record pre-crisis levels. Prices jumped 6.6 percent during the 12 months that ended in May, according to CoreLogic.

Toss in persistently low interest rates, tax goodies that come with owning a mortgage, and the psychological payoff from planting your roots, and maybe it’s no wonder real estate remains popular.”

The article also revealed that:

“Bankrate’s Financial Security Index — based on survey questions about how people feel about their debt, savings, net worth, job security and overall financial situation — has hit its third-highest level since the poll’s inception in December 2010.”

Bottom Line

We have often written about the financial and non-financial reasons homeownership makes sense. It is nice to see that Americans still believe in homeownership as the best investment.

The Impact Your Interest Rate Makes

The Impact Your Interest Rate Makes [INFOGRAPHIC] | MyKCM

Some Highlights:

  • Interest rates have come a long way in the last 30 years.
  • The interest rate you secure directly impacts your monthly payment and the amount of house that you can afford if you plan to stay within a certain budget.
  • Interest rates are at their lowest in years… RIGHT NOW!
  • If buying your first home, or moving up to the home of your dreams is in your future, now may be the time to act!

Real Estate is Best Long-Term Investment 4 Years Running

Gallup: Real Estate is Best Long-Term Investment 4 Years Running | MyKCM

Every year, Gallup surveys Americans to determine their choice for the best long-term investment. Respondents are given a choice between real estate, stocks/mutual funds, gold, savings accounts/CDs, or bonds.

For the fourth year in a row, Real Estate has come out on top as the best long-term investment! This year’s results showed that 34% of Americans chose real estate, followed by stocks at 26%. The full results are shown in the chart below.

Gallup: Real Estate is Best Long-Term Investment 4 Years Running | MyKCM

The study makes it a point to draw attention to the contrast of the sentiment over the last four years compared to that of 2011-2012, when gold took the top slot with 34% of the votes. Real estate and stocks took second and third place, respectively, while still in recovery from the Great Recession.

Bottom Line

As the real estate market has recovered, so has the belief of the American people in the stability of housing as a long-term investment.

Homes are Selling Fast Across the Country

Homes are Selling Fast Across the Country [INFOGRAPHIC] | MyKCM

Some Highlights:

  • The National Association of REALTORS® surveyed their members for their monthly Confidence Index.
  • The REALTORS® Confidence Index is a key indicator of housing market strength based on a monthly survey sent to over 50,000 real estate practitioners. Practitioners are asked about their expectations for home sales, prices and market conditions.
  • Homes sold in 60 days or less in 36 out of 50 states, and Washington D.C.
  • Homes typically went under contract in 34 days in March!