By: Victor Normand
We have a dynamic economy in the US influenced by consumers, business interests and government actions. Housing is one of the largest sectors of the economy, comprising about 15% of our Gross Domestic Product. Sometimes changes happen at a slower pace that are easy to comprehend and manage, other times not so much. As we enter the spring market, Homeowners, Buyers and Sellers have big changes to consider.
The two significant areas of concern are accelerating home values (appreciation averaging around 6% annually) and the effects of the recently passed tax reform. Both come to bear regardless of where you might be in the housing market, even if you have no plans to change your circumstance at all.
As home values appreciate, you will feel more wealthy and tempted to spend (credit card balances are on the rise) or borrow against the new higher home value using a home equity loan (HELOC), That’s the up side for many of us. The down side comes from government actions to share in your new-found wealth by potentially increasing your local property tax bill, and taking away your ability to deduct interest paid on your HELOC on your federal taxes. And of course, your home is not the only one now worth more money; the home you may be hoping to up-size or down-size into, has also gone up in value.
Coping with rising home values is not completely new and we all know strategies to deal with that. What IS new and different is the new tax reform law. Here, the economic dynamics is very personal. In fact, it is so unusual, the IRS is requiring that everyone who receives a paycheck complete a new expanded W-9 with their employer. We will all be turning to tax accountants and lawyers to help us sort things out. Full disclosure, I am neither so take what I have to say as merely conversation starters.
On the upside, if you do not own a home, you do have a spouse and children and receive a pay check for your work, you will be getting more cash in the envelope. Of course because you do not own a home, you have nothing to appreciate and some of your tax cuts are effectively off-set.
If you have plans to move to a state with low housing costs and no income tax, the new tax law will be very good to you unlike your neighbor who stays in the big house, has no children, a HELOC and draws a big salary.
So, the big question for someone interested in buying a home, comes down to the ability to afford the monthly payments, taking into consideration debt servicing and tax benefits or lack thereof, along with the overall impact of the new tax law as it provides and diminishes various benefits. And then there is the market appreciation factor to consider and its ability to make a purchase worthwhile in the long run.
None of the above takes into consideration all of the other really good reasons for living where you live in a home you love. Hard to put a price on that. As always, you do not need to be alone as you navigate the emerging and confusing real estate landscape. Talk to a Resident Expertsm at Acton Real Estate, they are there to help you sort things out.