State of the Country Market Report
The new tax law signed by President Trump will not pose a threat to the real estate industry, as what most people believe. The tax advantages and other benefits aren’t the only reason why people buy homes. They buy homes because 93% of them believe (as per NAR) it’s part of the American Dream. Buying a home is very rewarding and it can improve their financial situation. It’s one of the greatest investments you will ever make. Remember that prices will keep appreciating every year. Even in years of decline, the market has always rebounded and then some. Investing in Real Estate has always been a great investment.
The GOP Tax Reform
Just before Christmas, a new tax reform was signed into law. It’s applicable to new homeowners and loans that are approved after December 14. The tax law says homebuyers can only deduct the first $750,000 of their mortgage debt, instead of the previous threshold of $1 million. The GOP tax reform also limits the property tax deduction as it can only allow up to $10,000. The standard deduction for single filers has also gone up to $12,000 and $24,000 for joint filers.
With the GOP tax law, home prices in Florida, New York and other parts of the West Coast may see a slower growth but never a decline. However, some states will have home prices go up. The top 5 states where house prices will rise are in Colorado, Utah, Arizona, Washington and Idaho. Washington and Idaho’s home prices will rise to 5.5% according to the National Associations of Realtors. So these numbers are still good news for the residents of Idaho and Washington.
Before the new tax reform was signed into law, there has been a consistent increase of 6% per year for housing prices nationally. Sales of new construction or previously owned are at its all-time high in the last 10 years. 2017 was an extremely strong year. Homes are also sold faster. Idaho homes averaged on the market for 31-45 days only while Washington is up to 30 days.
The New Tax Law Won’t Affect Home Prices and Sales
Some say the tax law will likely impact the real estate industry. True, it may affect those areas with higher priced homes like New York and New Jersey. But it won’t dramatically affect the majority. In fact, there was a survey done for both sellers and buyers. For the sellers, 57.1 percent say the new tax reform will not impact sales. About 13.9 percents say it actually will have a good impact as they can sell faster because of it. So that’s more than 60 percent who says the new tax reforms will not have a negative effect on the real estate industry. Home prices will keep going up and more people will keep buying homes in the coming years.
Buyers were also asked how likely the new tax bill will affect their home buying plans. 29.2 percent say it’s going to make them buy homes sooner rather than later. About 22.9 percent say it will have no impact on them. 18.5 percent say it may slow down home buying. Only 14 percent say they will be buying a less expensive home, which is understandable as the threshold moved down to $750,000. The last 12 percent say they will postpone their plans of owning a home.
12% is a small number compared to the 29.2 percent who say they are more than likely to buy homes with the new tax reform.
According to Lawrence Young, the challenge is actually inventory, not the demand for buying homes. There should be at least 6 months of home inventory. In the last four years, their average was only 3.4 months of inventory. It’s not even close to 6 months. In 2014, they have 5.2 inventory; 4.8 for 2015; 4.4 for 2016 and 3.4 for 2017. The reason why sometimes sales don’t skyrocket is the lack of supply, not the demand for homes.
Home Sales Still at its All-Time High
New constructions and previously owned home sales are the highest in a decade! Since 2011, sales of new homes have been going up! For the last seven years, the number of new homes sold is consistently growing. Also, there is a larger demand for single-family homes since 2007! Applications are piling up. This is the reason home builders are building more and more single-family homes. They’re very optimistic about an even stronger year. The forecast is an even better 2018! In the past 12 months, homeowner equity also increased to $871 billion! This is one of the reasons why home prices keep rising.
Freddie Mac, NAR, Fannie Mae and Mortgage Bank Association have also increased the number of houses sold. The tax code and the interest rates will not make most homebuyers stop or postpone their homebuying plans. It’s not going to pose a bigger threat as some people would think. Some of them probably will but the majority won’t.
Homeowners are still able to sell their primary residence every two years and capital gains haven’t been touched. They can still make a $250k or $500k profit on your properties every other year.
House Flipping — Another Option for Wealth Creation
You can turn a profit when you buy a house, watch the market, and sell when the values soar. House Flipping is buying a real property and then selling it for a bigger profit. It’s imperative to choose a neighborhood where home prices will rise so you can earn more profit. It’s also critical to closely watch the market when house flipping. There are still some good flips out there.
For more about investing in house flipping, please contact me.
Buying a Home Is The Best Investment
Buying a home is a great investment as prices always go up. The value keeps appreciating every year. With rent expected to grow this year according to the economist, Aaron Terrazas means only one thing: there will be more demand for homes. Renters prefer to pay mortgages instead of paying for rent that will likely go up yearly. Price-wise, buying a home is still the best choice. According to Home Price Expectation Survey, a $250,000 home would grow to $294,905 in 5 years! That’s $44,905 increase! Where else will you get this wealth but in real estate?