2018 looked to be an intriguing 12 months for the real estate market. Since there’s a recently developed tax plan in effect that changes the economic pricing of houses, we should expect to see an effect within the housing market. The size of that effect is still hidden along with its possibility of decelerating growth, but an educated guess can be made that small interest rates and growth will not be stopped. Now onto this year’s predictions.
In 2017, minimal surpluses to interest rates were expected. It was assumed that if our president actually stayed true to his word and cut taxes, that the market would find some balance and grow steady. Not all assumptions were in agreement though with some guessing there would be unpredictable interest rates, reduced cost conveniency, and an overall colder market.
Constant with our forecast, interest rates continued notably low and were actually under most people’s expectations. Last year, the standard rate on a thirty year fixed loan was nearly 4%, marking a .34% increase since 2016. And this was even with the Federal Reserve constantly raising the target interest rate last year. Even though the president was unable to go through with his updated tax policy until late last year, there are still modifications that will have a prominent effect within the market.
The housing market in Los Angeles continuously grew in 2017. The average home price in LA county went up by a little over 6.65%, staying on the path of 2016’s increase of roughly 6.59%. Overall, 2017 was pretty similar to former years, with small interest rates and rising home prices.
Other organizations on “2018’s real estate estimates”
We’ve collected some information on what some other reliable organizations have to say about this year’s estimations.
Redfin says that consumers will move out of higher taxed areas like California and New York, because of the removal of tax reductions. Less homeowners will put their property on the market as a result of modifications applied to residency requirements, in order to take capital gains exclusions. Higher populated areas like cities will experience inflated demand from millenials looking for homes.
Forbes has estimated a reduction in demand, along with an expansion in interest rates, rounding out to a rise in prices of roughly three percent, as opposed to other assumptions of six percent.
Zillow says that home prices will proceed in rising, but at a more gradual pace than before. Lack of supply will persist, causing prices to progress, along with construction concentration on first-level homes, and millennials will start moving to suburban areas.
As for our estimations?
The modified tax code is expected to be a profound factor in the market, but we estimate small interest rates and lack of supply will resume in pushing prices up, just at a reduced pace from the last two years.
Buyers looking for new homes will experience a drop in the affordability of homes thanks to this new code. This will come as a result of the loan limit reduction for the mortgage interest subtraction of $250k. The code also restricts the local and state tax subtraction down to ten thousand yearly, similar to the amount of property tax an owner can foresee paying on a one million dollar home. Under the basic of the economic principles of how price relates to demand, this should hypothetically lower demand, and as a result, force prices to decline.
Intensifying the push, are expected surpluses added through the Federal Reserve toward target interest rates. Last year, the rates were elevated thrice, symbolizing an aim for additionally assertive interest rates. During this year, this pattern is presumed to persist as yet another effect of the tax code. Inflation is expected to move in the direction of two percent, steered by cut tax rates to the corporate position. Formerly the FR was hesitant to rise said target interest rate with inflation beneath two percent, but if it follows its supposed forecast of climbing up then that would leave no cause for rates not to ascend.
Opposition to growth is definitely still prevalent through the lowest rates in history and shortage of supply but growth will still likely resume. The resistance will be felt through the decelerating speed of said growth but that’s expected to be the biggest effect we’ll see.
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