Rod's outlook for real estate in 2018: Here in the Portland Metro in a word, "healthy." I do not foresee a massive spike in pricing or the crazy multiple offer bidding wars 10% above asking like we saw in the first half of this year. That tends to be sort of exciting but it is not sustainable and it is terrible for the buyers trying to get a house before they close on the one they just sold.
I see a market that should remain in the favor of sellers under roughly 115% of median value. From 115% to the upper middle bracket of 200% of median I see the strong possibility of neutral market conditions. Above that 200% of median, locally above $600k may even slide into a slight buyers market. I don't see soften prices, just very modest appreciation in the high end and average to slightly less than average appreciation in the low to middle price ranges.
This is a healthy condition because home values that rise in double figures for more than a few years leads to hard crashes as that greatly outstrips the wage growth. A healthy market with values appreciated in the 3-5% range is sustainable long term and when things get tight on incomes the market will get a soft landing.
The new tax law recently passed by congress and signed by the President, will increase the standard deduction for a married couple to $24,000 per year. The ability to deduct state and local taxes has been severely cut back. For entry level home buyers the ability to "write off" mortgage interest may not be a viable option. You see, a $300,000 mortgage at 4% will have about $13,000 in deductible interest in the first year and it will decline each year as the balance is reduced. Most people cannot come up with another $9,000 in deductions to reach the point of beating the standard deduction, so itemizing may not make sense anymore. This is a huge benefit to renters as they will now gain a massive increase in deduction where as home owners will either save a little or see no gain in benefit.
According to the politicians the idea was to eliminate the need for average Americans to fill out complex tax forms, pay accounting fees to do it for them, or buy software to help them. I suppose this is a good thing, but not everyone likes this flavor of taxation.
Homeowners should talk to a tax pro to see how the changes for 2018 will affect them. Self employed people and others with large company and business expenses will likely continue to do taxes they way they always have. But W-2 wage earners may see a nice simplification to the annual annoyance that is filing tax returns.
Those with larger mortgages and or higher than average deductible expenses will not likely benefit from the higher standard deduction but all taxpayers will benefit from the lower tax brackets. Overall I remain cautiously optimistic about the plan, congress does have a way of screwing things up though, so we shall see :)
Happy New Year! I'll be back in 2018.
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