A recent article in the New York Times highlights several factors that will help determine the fate of this spring’s housing market in the U.S. The report concludes that housing prices around the country are likely to increase, with the supply of homes lagging the ever-increasing demand stemming from new millennial homebuyers.
Among the factors impacting this spring’s housing market is the recent federal tax law, which experts predict will have an overall negative impact on the demand for new housing. The new tax law reduces the amount of mortgage debt that home buyers can deduct from their federal taxes. As a result, buying a new home will cost more for many high-income purchasers in 2018 than it did for those in 2017. The mortgage deduction in 2017 stood at $1 million and has now been reduced to $750,000. Despite this change, Moody’s Analytics predicts that the overall negative impact on the housing market will be marginal.
A second factor likely to have a negative impact on the demand for new homes is rising interest rates. Interest rates for fixed-rate mortgage loans have increased because of higher inflation and a growing economy-both factors are expressed by rising prices in the global bond markets. However, as with the new tax law, the negative effects of higher mortgage rates are not projected to have a severe impact on home buying. In fact, a recent survey by the online brokerage firm, Redfin, indicates that most U.S. homebuyers will not alter their home buying plans as a result of increased rates.
At the end of the day, this spring’s housing market is likely to be most influenced by broader demographic trends in the U.S. Members of the millennial generation are continuing to buy homes at a rate outpacing supply. Basic economic calculations resulting from this phenomenon indicate that home prices will continue to increase due to the disparity between supply and demand. So despite the news emanating from the economy or Washington, the housing market this spring seems poised for lots of selling-and at higher prices.