By Selina Stoller, Summit Consumer Receivables Acquisitions, LLC
The spring housing marketing is shaping up to be the most interesting one in years.
According to the New York Times, the economics of home buying will be tested thanks to higher mortgage rates, tax changes, and a supply-demand imbalance.
In mid-September 2017, the average rate on a 30-year, fixed mortgage was 3.78 percent – the most recent reading hit 4.45 percent. The math affordability works out to a family resolving to pay $2,000 a month for a home mortgage being able to afford borrowing $397,000 today, down from $430,000 in September.
Tax reforms passed in December subsidizes homeownership in ways large and small.
The law reduces how much mortgage debt will benefit from tax-deductible interest payments. Previously, property taxes had no limits in being deductible against federal income tax – but now the deduction of property and other state and local taxes is capped at $10,000.
Tax legislation could also shift incentives for buying compared with renting. The new law roughly doubles the standard deduction that all households can take. For a married couple, the deduction could be up to $24,000, which means more households will find they get no net tax savings from taking on a mortgage. Instead, they are better off just taking the larger standard deduction whether they buy or rent.
Interest rate developments and tax policy changes come amid an imbalanced housing market. Rising demand for homes from millennials has been met with a shortage of supply.
Many of the metropolitan areas with the strongest rates of job creation — and high housing demand — have restrictive zoning laws which make finding suitable land a challenge. If there are more families looking for a place to live than there are new homes to accommodate them, the pressure on prices and sales will be upward no matter what happens as the market adjusts to higher mortgage rates and tax changes.
As long as there are more families looking for a place to live than new homes to accommodate them, the pressure on prices and sales will be upward, no matter what happens as the market adjusts to higher mortgage rates and tax changes.
The housing market will ultimately depend on which force proves more powerful: long-term fundamentals of supply and demand, or short-term ripples coming from Washington and Wall Street.
- 5 Apr, 2018
- Josh Smith