April 10th, 2018 5:40 AM by Jackie A. Graves
Tax-law changes, a stronger economy, and rising interest rates are
just some of the considerations
Buying a home has always been a
difficult process. But this year the new tax rules, the stronger economy, and
rising interest rates have made the home-buying decision even more complex.
market factors indicate that it’s a great time to buy a house. Mortgage
interest rates remain historically low. Rental prices in many regions are going
there’s a lot more to think about. The new tax law trims deductions that
have benefited homeowners in high-tax areas for years. That complicates the
outlook for prices in those areas. Some experts think prices could fall, but no
one really knows what the impact will be.
The tax cuts and a stronger
economy will also put more money in people’s pockets, although the effect of
that also remains to be seen. Then there are local factors, such as the supply
of available housing, the strength of the regional economy and property
you sort through all of this, here’s a rundown of all the different factors
that could affect housing in your area:
• You could have more money for
housing. The tax law is likely to increase take-home pay for many
Americans, though how much is unclear. Tax brackets and rates are changing,
many itemized deductions have been eliminated, and the standard deduction has
nearly doubled, but many people won’t get an idea of how much more they’ll get
until the changes start showing up in their paychecks. That could happen as
early as February, according to the Internal Revenue Service.
to the nonprofit Tax Policy Center, based in Washington, D.C., average
after-tax income in 2018 will rise 2.2 percent for the country overall. For
instance, taxpayers in the middle income quintile—with income between about
$49,000 and $86,000—will see an average
increase of about $900, or 1.6 percent of after-tax income. (A Consumer Reports
analysis shows that how much you gain or lose from the tax
change depends heavily on individual circumstances.) Higher earners will
get a bigger average boost in income; those making less will see little
• Renting may become more costly. The
national average rental vacancy rate is a low, 7 percent, notes Mark Zandi, who
is chief economist at Moody’s Analytics and is based in West Chester, Pa. In an
environment where people aren’t moving much, rents can rise. (A current
exception is higher-end rentals, Zandi adds; a recent increase in supply is
likely to slow the growth in those rents.)
decision on whether to rent or own depends on your personal situation and local
market conditions. Check out resources from the Consumer Financial
Protection Bureau to help you make the decision.
(Unfortunately, the rent-vs.-buy calculators we looked at—CalcXML, The New York Times, Realtor.com,
yet take into account new tax brackets and other changes from the new tax law,
so it’s difficult to accurately compare the cost of renting and
• Mortgage rates could rise. Locking
down an interest rate now could be a smart move. The Federal Reserve is
expected to raise its short-term lending rate several times this year, which
would immediately affect adjustable-rate mortgages. Currently five-year ARMs
have an average interest of 3.47 percent, according to HSH.com, a mortgage
said, observers aren’t expecting 15- and 30-year fixed mortgage rates, which
are still near historic lows, to jump precipitously. Keith Gumbinger, vice
president of HSH, projects that the 30-year fixed-rate mortgage, now averaging
3.99 percent, could rise to around 4.5 percent. “We’re not likely to even hit 5
percent this year,” he says. “I don’t think it’s a deal-breaker for most
• Qualifying for a mortgage could
get easier. Would-be buyers who might otherwise have difficulty getting
a home loan could get a leg up if quasi-government mortgage backers Fannie Mae
and Freddie Mac begin to allow lenders to use alternative, potentially more
lenient credit scores in their decision-making. Fannie and Freddie purchase
and guarantee the vast majority of traditional home loans in the U.S.
Federal Housing Finance Agency, which owns Fannie Mae and Freddie Mac, recently
said it was evaluating whether lenders should be able to use
alternative credit scores in determining mortgage applicants’
eligibility. FHFA has long required lenders to consider mortgage applicants’ FICO credit scores in
some lenders, particularly
online mortgage companies, have argued that alternative credit
scores, such as VantageScore, could open up mortgage lending to qualified
millennials with short credit histories, among others.
expect a quick change, though. The FHFA is soliciting public comments though
Feb. 20; it could then take months to issue a decision. In the meantime, if
you’re worried about your credit history, you might be better off improving your credit
score on your own.
• The tax law could lower
prices in some areas—eventually. Buyers in areas with high
property taxes and real estate prices, such as New York’s Long Island and
suburban Washington, D.C., could have more leverage in the future, Zandi says.
The new tax law reduces mortgage interest deductibility to borrowings of
$750,000 or less; it also eliminates the deduction of all but $10,000 in state
and local taxes, including property taxes. If demand for homes in those regions
weakens as a result of those changes, so could prices.
that shift may not happen for a while. Buyers in affected regions might see
some price declines in the next 18 to 24 months, Zandi opines. Even in those
areas, home values may soften only modestly or just stay flat for a couple of
years. “The underpinning of the market will continue to be strong,” he says.
people aren’t buying or selling because of nuances in tax policy,” agrees Aaron
Terrazas, senior economist at the real estate site Zillow, based in Seattle.
“They’re making decisions because they’re having children, retiring. That’s
going to happen regardless of the tax situation.”
buyers aren’t sure whether they should purchase now, they should consult a
financial adviser, he adds.
Casey, policy adviser for Zillow, concurs. “What it’s going to boil down to is
after-tax income and paychecks,” he says.
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