Housing Market 2018 – What To Keep An Eye On!

I personally don’t like to make predictions as they can be meaningless.  There are, however, a lot of recent changes and trends to watch for their impact on the housing market as we move through 2018 and beyond.  Here are a few:

* Changes in the tax laws.

*Changes in interest rates.

*Rising home prices and lack of affordability.

*Continuing low inventory of homes for sale.

*Flood risk/natural disasters and rising home insurance costs.

*Buyer reluctance to pay top dollar for homes that haven’t been updated or with

outdated floor plans.

Changes in the tax laws:

The 2017 tax reform bill allows the mortgage interest deduction on loan balances up to $750,000 (down from $1,000,000).  This is for your primary residence or one second home.  Also included in this bill is a cap of $10,000 for the deduction of state and local property and income taxes.  These particular changes have more of an impact in high-tax states like New York and California where there are also higher-priced homes.

Will these changes cause some buyers to choose renting over home ownership as some of the tax incentive for owning is reduced or removed (depending on each taxper’s situation)?  Will more people make a move to lower tax states where housing prices and cost of living are lower?  Will the high-end, luxury market in high-tax states experience an oversupply of homes for sale in response to these changes in the tax law?

Owning a home for many is still important for wealth building and family stability.  Also good jobs are a most important factor in supporting housing choices.  Moving to a lower tax city or town that lacks quality job opportunities may not make sense.  Those who were planning a move for retirement or other reasons in the future, however, may find it makes sense to consider that move sooner than later.  Luxury homeowners planning to move may want to allow a little more time for these high-end homes to sell than in the past.

Changes in interest rates:

The Federal Reserve increased interest rates in December and have stated they plan on several increases during 2018.  The healthier economy and job market point to a more opportune time for these increases than in the past when the economy was more stagnant.

Although each increase is expected to be only 1/4 of a point (or percent), each movement upward increases the cost of purchasing, making it more difficult to qualify for a loan.  As mortgage rates, after these increases, reach a new level of about 1% higher than this past year’s rates, it can be calculated that the ability to purchase is reduced by approximately $70,000-$100,000.  Rising interest rates do have an impact on home price appreciation, and as rates rise, appreciation is reduced.

Rising home prices and lack of affordability:

Prices of homes have risen throughout the United States and many homeowners have recovered the equity they lost in the aftermath of the financial crisis.  Buyer sentiment is high with a strong labor market contributing to the interest in buying a home, but especially in this NY Metro area there is a lack of affordability.  On a recent list of the least affordable cities (out of 32 cities) Queens ranked #10 on the least affordable list (Manhattan and Brooklyn ranking higher).  Long Island MLS data for December 2017 reported that Queens median home prices increased 16.2% from December 2016 – $550,000 up from $473,000 reported in December 2016.

Continuing low inventory of homes for sale:

Inventory of homes for sale has continued to decline across Queens and Long Island, and similarly across the nation. The total number of Queens/Long Island residential inventory reported in December 2017 was 12,770, representing a 7.1% decrease from last year.  This lack of homes for sale has contributed to multiple bidding for many properties and ultimately rising prices.

In a recent national survey the sentiment of homeowners that now is a good time to sell is the highest it’s been in a long time, while the sentiment among buyers that now is a good time to buy has dropped by 5 percentage point.  Could this be the start of a shift in the market to more equilibrium – equal number of buyers and sellers and a normalization of prices?  With a market shift, housing prices will appreciate at a slower pace and bring affordability more in line for many looking to buy.

Flood risk/natural disasters and rising home insurance costs:

This past year we’ve watched many towns and cities devastated by these storms and natural disasters.   We will have to watch and see how locations that have experienced these events bounce back, and how demand for housing and ultimately pricing is affected.  Included in this pricing will be what will probably be higher insurance costs.

Buyer reluctance to pay top dollar for homes lacking updating and modern floor plans:

Renovating to sell may become more of a trend as buyer expectations are high for a home they are paying top dollar for.  For example, it is no longer a plus that there is a new roof on the home – that is expected by today’s buyers.  Older floor plans seem outdated and unattractive, so renovating to create a modern appeal can more than pay for the cost to undertake the project.

These are just some of the factors that will be influencing the housing market in the months and years ahead.  Real estate is local and each location will react slightly differently, so it is important to view all these changes and trends together with their impact on each micromarket. Always consult your “team” of professionals as you consider your options and plans for a move – attorney, financial advisor, real estate broker, contractor, insurance broker, etc.  It will certainly take time to see the true impact of these changes so “stay tuned” as we keep you posted going forward!

Sources – Inman News, RisMedia, Long Island Board of Realtors MLS