According to the National Association of Realtors®: “The new tax law is already in effect. The new tax law reduces the limit on deductible mortgage debt and limits the deductibility of the real estate tax up to $10,000. These two provisions are expected to have an impact on the housing market. Moreover, a higher standard deduction may lessen the incentive to purchase a home, as fewer consumers will utilize mortgage interest and property tax deductions.
The following four factors need to be considered as driving forces of the housing market in 2018:
(1) Current housing market conditions and momentum
(2) New tax law impact
(3) Interest rate effect
(4) Employment and construction scenarios
Aside from the tax reform impact, it is of utmost importance to understand that the current state of the housing market will also influence home prices. Prices are shaped by supply and demand, like any other economic asset. A shortage of supply pushes up prices, while excess supply causes prices to fall. In the past five years, housing inventory has fallen across the country and as a result, home prices continue to rise.
Every month, CoreLogic releases its Home Price Insights Report. In that report, they forecast where they believe residential real estate prices will be in twelve months.
CoreLogic projects an increase in home values in 49 of 50 states, and Washington, DC Nationwide, they see home prices increasing by 4.2%. In Florida, home prices will increase by 4.4%.
How might the new tax code impact these numbers?
According to NAR, the new tax code will have an impact on home values across the country. However, the effect will be much less significant than what some originally thought.
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