How Tax Break Affects New Townhome Communities’ Sales

Photo of author

(Newswire.net — February 6, 2018) — Since the real-estate market crash over a decade ago, homeowners have been on an economic upswing for the past six years or more as home prices have stabilized. In fact, home prices are up as much as 30% all around the nation, with some areas enjoying a much bigger jump in equity. With the new tax plan in action, is it forecasted that the upward trend will continue, or will it have a negative impact on housing?

Right now housing prices are at the height of even the housing bubble, but there isn’t a bubble anymore. Household incomes are much more level with housing prices, making the market more stable. Those who were able to weather the storm or have been allowed to purchase a home are now more likely to be able to afford it as well – as opposed to two decades ago, when financiers were putting people who didn’t have the means into homes that they couldn’t afford. Thanks to more stringent lending practices and lower mortgage rates, household income now is more in tune with what a homebuyer can actually afford than it was when the housing bubble burst, leaving many in ruins and without a home.

Even though the stock market is making amazing gains, that might not translate into higher real-estate market prices. Since most home mortgages are no longer a part of stock trading anymore, the market is likely to have very little effect on household prices at all. Homeownership has returned to what it was 50 years ago: a steady investment for middle- and upper-class individuals.

A home is still a great investment, but it’s one that won’t be a quick and substantial investment that is going to pay off anytime soon. The average homeowner is no longer looking to get the home of their dreams at any cost. They are instead looking at the modest home that will let them be in a house that they can afford, and are looking to build equity by fixing up and upgrading a lesser home to make it more of what they desire.

There are some communities, however, that could significantly suffer due to the changes in the tax code. Owning a home used to come with the advantage of a large mortgage interest deduction and a property tax write-off. But things are about to change. Many who were considering owning over renting because they could write off their mortgage and their property taxes are thinking twice about homeownership. The new proposed tax changes take away the incentive for those with specific home budgets to benefit at all from purchasing a home. If they can’t take the tax write-off, it might seem like a better idea to let someone else maintain and pay for a home and keep renting instead of owning.

One reason that areas like townhome construction – which typically cost less – might also suffer under the new tax laws is because there is no doubt that there will be an increase in mortgage rates that will significantly impact the amount of money that a homeowner has to purchase a home. Because higher interest rates will raise a homebuyer’s monthly mortgage costs, if you can’t write off the interest, you are losing a huge incentive to pay for a home instead of renting.

The hardest-hit communities will be those with higher taxes, which is typically in big cities where new townhouses and communities are in abundance due to less green space. But with homeowners’ decreased ability to afford a mortgage, that is likely to raise the cost of rent around the nation, which will put an undue burden on those who are less economically blessed.

The new tax plan might help the average American bring home more of their paycheck, but what it does to those who had dreams of buying a new home could have a negative impact. Those who were renting to save up a down payment might be paying more in rent, dipping into their down payment savings. And those who thought that they could afford a townhouse are now considering the fact that the interest rate is going to tack on a whole lot of additional money in their monthly budget. The stock market might love the tax changes – but whether the real estate market will or not, only time will tell.