Is the New York housing market expected to face a bubble? Are the prices expected to fall? How could the tax reform bill affect both homebuyers and property sellers? We have done some research and used Redfin’s data to give you a forecast for the New York housing market 2018.
New York Housing Market 2018: Homebuyers to Leave High-Tax States
The tax reform bill, if passed, will have a drastic effect on the housing market, in general, and on the New York housing market, in particular. If the state and local tax (SALT) deductions are eliminated in areas where taxes are already at a high rate, such as California, New York, Maryland, and New Jersey, people might have to leave these states and go to places where they can find better homes that are more affordable. A survey of 900 homebuyers concluded that around 30% of the respondents would consider moving to a different state if they are no longer able to deduct state and local income and property taxes.
These tax changes could affect a number of housing markets, which make up a quarter of the homes sold during 2017, according to Redfin’s records. According to Redfin’s Migration Report, people are looking to leave the expensive areas of coastal cities to seek more affordable mid-tier places such as Phoenix, Sacramento, and Atlanta. This trend is becoming more apparent as Nashville became among the top 10 destinations that people migrate to, and it will only become more apparent and more intensified if the tax reform bill passes.
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New York Housing Market 2018: Fewer Homeowners Will Sell
The new tax reform will also affect homesellers by increasing the timeframe in which they must have had lived in the property prior to selling it in order to take advantage of tax deductions on capital gains. Currently, home sellers are required to have lived in the property for two out of the previous five years prior to selling it, which would allow them to exclude $250,000, or $500,000 for married couples, from their capital tax gains. The new bill will require homesellers to have lived in the property for five out of the previous eight years prior to selling it, which makes it harder for some homeowners to sell their property and still take advantage of the capital tax gains exclusion.
This will lead homeowners who intend on selling their homes to stay in the property and reside in it for a few years longer, which would further increase the shortage in supply.
New York Housing Market 2018: Millennials to Popularize Urban Suburbs
The millennials’ effect on the housing market has also been on the rise. Not content with the available cities or the suburbs that surround them, the millennials’ demand for a new type of neighborhoods has led to the emergence of “Urban Suburbs” – high-density neighborhoods in suburban areas that share a number of urban qualities, such as the walkability and the amenities available in them. Millennials who are entering the market and affecting it with their demand are mostly high-income millennials who want urban lifestyle as well as high-rated schools, and they have the money to afford it. This led to a number of new Urban Suburbs which are on the rise, and which any real estate investor should keep an eye on in 2018.
Here’s a list of Redfin’s top 10 Urban Suburbs, their walk score, and their average school rating:
- West Chester, PA: 79 Walk Score | 9 school rating
- Arlington, MA: 64 Walk Score | 9 school rating
- East Meadow, NY: 54 Walk Score | 10 school rating
- Skokie, IL: 63 Walk Score | 8 school rating
- Morton Grove, IL: 60 Walk Score | 9 school rating
- Jacksonville, FL: 52 Walk Score | 10 school rating
- Garden City, NY: 54 Walk Score | 10 school rating
- Mountain View, CA: 58 Walk Score | 8 school rating
- Royal Oak, MI: 55 Walk Score | 7 school rating
- Brea, CA: 51 Walk Score | 9 school rating
Note: The Walk Score measures the proximity to urban amenities in the area from 0-100. A Walk Score of 70-100 indicates that most errands can be done on foot, while a Walk Score of 0-50 indicates that the area requires a car to move around.
New York Housing Market 2018: Homes Will Sell Faster
Due to the shortage in supply, homes will be selling faster in the New York housing market 2018. While homes also sold fast in 2017, with 25% of homes selling in two weeks or less during the buying season’s peak, it is expected that homes will even faster in the New York housing market 2018.
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New York Housing Market 2018: Mortgage Payments Will Increase
While the market prices are already at a high point, homebuyers should also be wary of the increased expenses related to their mortgage payments. Due to the Federal Reserve’s reduction in the size of its asset portfolio ($4.5 trillion), which includes $1.7 trillion in mortgage securities, the mortgage rates are expected to increase at a slow pace following this portfolio reduction.
With higher home prices as well as higher interest rates, mortgage payments are expected to be higher for the same home in the New York housing market 2018. With an increase in monthly payments and interest rates of around 13% in 2017, it is expected that an even higher increase of 15-20% will take place in 2018.
New York Housing Market 2018: No Bubble
Despite the rising concerns that the New York housing market 2018 might be facing a price bubble, real estate experts predict that no bubble will be seen in 2018, which is mainly due to these reasons:
- First, both property buyers and property sellers appear to be on the same page when it comes to prices, as seen from the sale-to-list ratio of 100% or above in some of the most expensive West Coast markets in 2017.
- Second, despite the drastic increase in prices in West Coast metropolitan areas, which have surpassed their 2006 peak, the homebuyer debt rate has declined. The amount of mortgage debt as a percentage of the home value (known as loan-to-value) can be used as an indicator, and it signals that the price growth will continue throughout 2018 at about the same rate as in 2017.
Also Read: How to Buy Rental Property Out of State
The New York housing market 2018 will be an interesting market to keep an eye for. With a shortage of supply, the market looks like a better seller’s market. However, the tax reforms which are expected to take place will affect home sellers and reduce the number of homes that are being sold, which would further increase the gap between supply and demand in the housing market.
But is it a good time to invest in New York? Since the price growth is expected to continue, and millennials are pushing for new development projects and the creation of urban suburbs, it is still difficult to predict how the New York housing market 2018 will perform. But if you’re intending on purchasing a house in the market, then now is a good time, as property prices will only increase from here on.
Want to learn more about the New York housing market 2018? Head over to Mashvisor and start searching for properties in the market to see how it’s performing and what properties are expected to generate the highest returns.