Changes to Tax Threaten US House Price Growth  

Despite fast rising home values now, housing experts in the United States say they expect price appreciation to slow to below 3% by 2021.

The latest industry survey conducted by economics and consulting firm Pulsenomics, asked more than 100 housing experts and economists about their expectations for home price growth, and whether new changes to US tax laws will affect these predictions.

When asked how the new tax law has impacted their five year forecast for home values - some 41% said their overall housing outlook is now more pessimistic, while 31% of the panellists had a more optimistic view as a result of the tax reform. The remaining 28% said that tax reform did not change their outlook.

The Tax Cuts and Jobs Act, enacted in December 2017, limited many itemised deductions such as the mortgage interest deduction while expanding the standard deduction. Most taxpayers take the standard deduction, and will see take home incomes increase as a result of tax reform, providing a boost to spending, savings and investment in the short-term.

However - experts’ cite that that cutting taxes now when the American economy is already running at full capacity increases the risk of a downturn in the next five years. This could push the Federal Reserve to increase interest rates faster than had been expected, throwing fuel on an already ranging fire leading the economy to overheat.

As it stands - homes today are already less valuable than they would be if the 2008 recession hadn’t happened; the median home value currently some 4% lower at a value of $206,300.

‘A case in point - the persistent short supply of entry level homes for sale has highlighted just how bifurcated the US housing market has become. said Terry Loebs, founder of Pulsenomics. ‘Limited inventory of low priced homes, coupled with expectations for rising interest rates, likely foreshadow a frenetic buying season for qualified first time home buyers,’ he added.