Photo: Robert Clark
The recent passage of the Tax Cuts and Jobs Act has more real estate experts feeling pessimistic about the future of the US housing market.
According to the results of a quarterly survey sponsored by the listing site Zillow and conducted by Pulsenomics, more than a third of respondents “lowered their expectations” long-term for the housing market.
Some 41 percent of respondents lowered their five-year forecast for the home values due to the passage of the tax bill. On the other hand, 31 percent of respondents were reportedly more favorable about the market’s outlook.
Experts point to one of the more controversial changes featured in the tax bill as potentially problematic for the housing market. The new tax law limits many itemized deductions, like the mortgage interest deduction, while at the same time increasing the standard deduction. Most taxpayers will opt for the standard deduction and will see “take-home incomes increase as a result of tax reform, providing a boost to spending, savings and investment this year.”
But while that sounds more like a positive outcome than a negative one, Zillow points out that many experts may fear that cutting taxes when the economy is “already running at full capacity” increases the risk of a downturn in the next five years. Thus, it wouldn’t be hard to imagine the Federal Reserve increasing interest rates at a faster pace than expected.
“By expanding the standard deduction, tax reform will put more money into the typical American’s pocket in 2018, which will boost spending and could help renters save faster for a down payment,” Zillow Senior Economist Aaron Terrazas says in the digital release.
However, Zillow warns that the longer-term picture isn’t necessarily as bright.
“There is some concern that tax cuts at this point in the business cycle may be throwing fuel on an already ranging fire and could lead the economy to overheat. Most economists we surveyed see a stronger outlook for the housing market over the next year or two but a more pessimistic outlook on the longer horizon,” says Terrazas.
Despite fast-rising home values now, most housing experts surveyed say they expect appreciation to slow to below 3 percent by 2021.
And if the housing bubble and subsequent bust had never happened, and home values had instead appreciated at a “steady pace,” the median home value would be about $214,500 — 4 percent higher than its current value of $206,300, according to Zillow.
Housing stock is in very limited supply, especially in the lower tier of the market which is causing prices to rise as homebuyers enter bidding wars.
Tight inventory, coupled with high demand from home buyers, will remain the biggest trend shaping the market in 2018– especially at the lower end of the market where “competition for entry-level homes is fierce and prices are rising more quickly than in other segments,” according to Terrazas.
“The experts project that the value of homes in the bottom third of the market will appreciate at 6 percent this year—double the rate expected for the highest-priced tertile. Limited inventory of low-priced homes, coupled with expectations for rising interest rates, likely foreshadow a frenetic, anxiety-filled spring buying season for qualified first-time homebuyers,” Terry Loebs, founder of Pulsenomics, says in the digital release.
Click here to read the entire release.