With a new year come new changes, and with that new opportunities! The combination of a strong economy with a slightly slower real estate market may make for some excellent buying or selling opportunities for those looking to take advantage of favorable conditions. As we enter into 2018, here is an overview of some things to know that affect the real estate market.
NEW TAX BILL:
Many clients have asked me what to expect in the new year with the new tax bill. Here are some key things to know that may affect you if you are planning to buy or sell in the future:
- The standard deduction has doubled—$12K for individuals and $24K for married couples.
- There are new limitations placed on the how much mortgage interest can be deducted. New home buyers will be able to deduct interest on the first $750,000 of their mortgage. For example, on a mortgage for $750,000 over 30 years at 4%, the interest paid on the first full year will be just under $30,000. The interest deduction is reduced from the previous deductions for mortgages up to $1M. Those who presently have mortgages are grandfathered and are allowed an interest deduction based on the previous rules. Interest deductions for home equity loans are being disallowed.
- You can deduct up to $10,000 of your state and local taxes (SALT) and real estate taxes.
- Based on the above example, with the $10,000 you can deduct for SALT in combination with an approximate $30,000 mortgage deduction, that yields around $40,000 in itemized deductions. This is $28,000 over the standard deduction for a single taxpayer and $16,000 over the standard deduction for married couples.
- Long story short, many area homeowners will still save several thousand dollars per year over the standard deduction by combining these itemized deductions for mortgage interest and SALT.
- You should check with your tax professional to advise on the impact of the NEW TAX BILL.
HOW THE TAX BILL COULD AFFECT THE MARKET:
It seems that the immediate trend is that buyer’s, especially first timers, are a little more tentative to jump in as they are still figuring out the financial implications of the bill, and sellers who don’t have an immediate need to sell are perhaps holding off to see how it impacts the market.
According to curbed.com, there is “one constant throughout the various reports compiled by New York brokerages: sales have slowed as buyers waited to see how the bill would shake out, and prices fell.”
Here are some important points to be aware of if you are thinking of buying or selling:
- Fewer apartments and more competition around the median price point: According to BrickUnderground.com, “If you’re looking for a place for under $1.5 million in Manhattan, fewer sellers may be offering up their apartments, so prices and competition for those that are listed are likely to increase. If you’re looking to sell and buy another place in New York or New Jersey, be aware of the new tax calculus, and consult with a professional on how it should inform your asking price and your purchasing budget.” Also, the New York Times explained that, sales of co-ops, which are typically older and less expensive than condos, rose 4 percent compared to the same period last year, according to a new report from the Corcoran Group.”
- More than ever, it’s all about LOCATION: Highly desirable neighborhoods such as Greenwich Village and Tribeca have a lot of unique apartments, and not a lot of new ones coming anytime soon, so where there is less overall inventory and more demand, there likely won’t be much of a change in the pricing of those homes. (BrickUnderground.com)
- The Luxury Market will continue to remain soft: “Rising supply continues to put downward pressure on prices at the higher end of the market, where discounts and price negotiations remain prevalent.” 90% of these sales were also all-cash. (curbed.com)
- Slowing in overall appreciation over the next few years: According to the Washington Post, “economists and housing experts broadly agree the changes will slow price increases in expensive housing markets — though nobody expects housing values to decline, given the overall strength of the economy and the fact that there are relatively few houses for sale in top markets.”
All in all, this may be a good opportunity for serious buyers to take advantage of a bit of a slower real estate market during what still appears to be a strong economy and historically low interest rates. For sellers, these conditions could make it favorable to sell units in and around the median price points.
Greg Smith, certified financial planner at the Wise Investor Group, summarizes it nicely. Home buyers and homeowners should not get carried away with calculations over the impact of the tax bill.“It’s easy to be short-term oriented,” Smith said. “If you’re buying a house, hopefully you’re buying a house because you’re going to be there for at least five years, and a lot can happen in five years.” (Washington Post).
As always please reach out if you, or anyone you know has questions about real estate that I can answer!
SOURCES:
https://ny.curbed.com/2018/1/3/16844440/new-york-real-estate-tax-bill-prices
https://www.nytimes.com/2018/01/03/realestate/4th-quarter-manhattan-real-estate-reports.html
